8
CHAPTER
THE IMPACT OF ECONOMIC
GROWTH ON MARKET VALUATION
AND THE COMING AGE WAVE
The term “new economy” has become, beginning in 2000, a fad in it-
self. It appears suddenly as a new name for our hopes and for eco-
nomic progress due to recent technological advances, notably the
Internet, and for our reasons to think that the future growth prospects
are ever so brilliant.
ROBERTSHILLER, 2001^1What are the most important macrotrends in the economy that influence
future stock market returns? Economic growth immediately comes to
mind. But economic growth has nowhere near as big an impact on stock
returns as most investors believe. However, other important trends do
have a positive impact on stock valuation: the stability of the overall
economy, the reduction in transactions costs, and the change in taxes on
stock market income.123(^1) Robert Shiller, Irrational Exuberance, New York: First Broadway Books, 2001, Afterword to the paper-
back edition, p. 249.
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