Saturday, November 14, 2015

017. GDP vs Market Cap

The sum of the total dollar value of all shares traded on stock exchanges is defined as “market capitalization”. It represents a share of the wealth that has been entrusted to the stock market and represents the accumulation of decades of investment decisions. 

One of the measures for making an assessment of the effectiveness of the stock market is to compare it with GDP, which is a measure by which a society evaluates is productive capacity. The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period. It is the size of the economy.


Market capitalization has exceeded GDP from 1981 through 2008, when the total value of prices on the stock exchanges equalled or exceeded GDP. That signals that the stock market prices may be excessive because they cannot exceed what is the underlying worth of the economy,

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