ABSTRACT. We evaluate to what extent the geographical and industry composition of the global real economy corresponds to that of public equity markets. We aggregate firm-level data on geographical revenue distribution to determine its geographical exposure, and national accounts data to determine the industrial composition of the real economy. We find that there are substantial differences between both regional and industrial composition of the real economy and equity markets. For example, the US is relatively overrepresented when the value of public equities is compared relative to its share of global GDP. Due to foreign exposures of US-listed companies, the economic exposure to the US of a global equity portfolio is much closer to its GDP than its market capitalization suggests. Similarly, the low share of emerging markets equities in a global portfolio is somewhat misleading, as the economic exposures of global equity markets to emerging markets are close to its weight in global GDP. From an industrial perspective, equity markets seem to be substantially overexposed to consumer goods and underexposed to consumer services compared to real economic activity. However, these industrial differences might also be caused by classification differences between economic and financial agencies. Nevertheless, the differences in composition may contribute to the explanation of the empirical disconnect between economic growth and equity returns. It may also help investors to target regions or industries in private equity that are underrepresented in their public equity portfolio. pp. 51–66
JEL codes: E01; F23; F60; G15; L16; O47

Keywords: economic growth; equity market; GDP; investments

How to cite: Swinkels, Laurens, and Yan Xu (2017), “Is the Equity Market Representative of the Real Economy?,” Economics, Management, and Financial Markets 12(2): 51–66.

Received 18 May 2016 • Received in revised form 13 July 2016
Accepted 13 July 2016 • Available online 1 August 2016


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Erasmus School of Economics,
Erasmus University Rotterdam
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Faculty of Economics and Business,
University of Groningen

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