Stock Market Returns Affect on Gdp

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http://www.1stock1.com/1stock1_139.htm
http://data.bls.gov/timeseries/LNU04000000?years_option=all_years&periods_option=specific_periods&periods=Annual+Data http://financeandinvestments.blogspot.com/2011/05/historical-annual-returns-for-s-500.html Jain, Rajiv, and Daniel Kranson. "The Myth of GDP and Stock Market Returns."2009. Web. 4 Mar. 2012. <http://www.virtus.com/vsitemanager/Upload/Docs/6141_GDPwhitepaper.pdf>. Rao, Rama. "Forecasting Future Returns." Financial Physics. N.p., n.d. Web. 5 Mar 2012. <http://www.financialphysics.net/future.html>. Bekaert, Geert, and Campbell Harvey. "Capital Markets:An Engine For Economic Growth." n. page. Web. 5 Mar. 2012. <http://faculty.fuqua.duke.edu/~charvey/Research/Published_Papers/P58_An_engine_for.pdf>. Bank of Valletta Review, . "THE RELATIONSHIP BETWEEN THE STOCK MARKET AND THE ECONOMY: EXPERIENCE FROM INTERNATIONAL FINANCIAL MARKETS §."1-12. Web. 5 Mar. 2012. <http://www.bov.com/filebank/documents/1-12_Gevit Duca.pdf>. Guo, Hui. "Why Are Stock Market Returns Correlated with Future Economic Activities?." Diss. Web. <citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197...>.

Stock Market Returns Affect on GDP
The markets give us a sense of security just by what a number or graph tells us. Most people base their future off of the stock market; whether it is for retirement or the paycheck that puts food on the table for tomorrow. So little is known about the stock markets and how they work, but so much is pursued by the hope of eternal wealth. The fluctuation in the market is determined so much by economic news or news that is broken about the company. We generally consider profits to be good news but sometimes we take it as bad news. By that I mean that Google may report earnings of 10.6 billion dollars and 2.7 billion dollars of earnings on those revenues and the public perceives it as a bad thing. Just because they didn’t meet the expectations of experts we see 2.7 billion dollars of profits as mediocrity. Their stock in turn fell 9% in after hours trading as a result. Since the wealth of a nation as determined by gross domestic product is determined partly by the wealth of its people, one would think that greater marker returns would result in greater wealth of the nation.

For my regression I used the Dow Jones Industrial Average and Standard & Poor’s 500 yearly returns in comparison to the growth percentage of gross domestic product. For this comparison most would think you would compare the current years return in the stock market to the current year’s growth or contraction of growth domestic product. But, I am using the previous year’s earnings in comparison to the for the next year’s growth in gross domestic product. I am using this because I am using the assumption that people are more inclined to spend if the previous year’s returns are higher as opposed to lower. By looking at the table you can simply see the numbers do not perfectly correlate. This makes the question come to mind of how much they really do have in relationship to each other. Year| Annual GDP Growth %| DJIA % Returns| S&P 500 % Returns| Year| 1977| 4.60%| 17.86%| 23.84%| 1976|

1978| 5.60%| -17.27%| -7.18%| 1977|
1979| 3.10%| -3.15%| 4.01%| 1978|
1980| -0.30%| 4.19%| 6.56%| 1979|
1981| 2.50%| 14.93%| 32.50%| 1980|
1982| -1.90%| -9.23%| -4.92%| 1981|
1983| 4.50%| 19.61%| 21.55%| 1982|
1984| 7.20%| 20.27%| 22.56%| 1983|
1985| 4.10%| -3.74%| 6.27%| 1984|
1986| 3.50%| 27.66%| 31.73%| 1985|
1987| 3.20%| 22.58%| 18.67%| 1986|
1988| 4.10%| 2.26%| 5.25%| 1987|
1989| 3.60%| 11.85%| 16.61%| 1988|
1990| 1.90%| 26.96%| 31.69%| 1989|
1991| -0.20%| -4.34%| -3.11%| 1990|
1992| 3.40%| 20.32%| 30.47%| 1991|
1993| 2.90%| 4.17%| 7.62%| 1992|
1994| 4.10%| 13.72%| 10.08%| 1993|
1995| 2.50%| 2.14%| 1.32%| 1994|
1996|...
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