第17章金融市場

As we stated earlier, the rate of return on a financial investment in a share of stock can come in two forms: as dividends paid by the firm and as a capital gain achieved by selling the stock for more than you paid. The range of possible returns from buying stock is mind-bending. Firms can decide to pay dividends or not. A stock price can rise to a multiple of its original price or sink all the way to zero. Even in short periods of time, well-established companies can see large movements in their stock prices. For example, on July 1, 2011, Netflix stock peaked at $295 per share; one year later, on July 30, 2012, it was at $53.91 per share; in 2022, it had recovered to $199. When Facebook went public, its shares of stock sold for around $40 per share, but in 2022, they were selling for slightly over $212.

We will discuss the reasons why stock prices fall and rise so abruptly below, but first you need to know how we measure stock market performance. There are a number of different ways to measure the overall performance of the stock market, based on averaging different subsets of companies' stock prices. Perhaps the best-known stock market measure is the Dow Jones Industrial Average, which is based on 30 large U.S. companies' stock prices. Another stock market performance gauge, the Standard & Poor’s 500, follows the stock prices of the 500 largest U.S. companies. The Wilshire 5000 tracks the stock prices of essentially all U.S. companies that have stock the public can buy and sell.

Other stock market measures focus on where stocks are traded. For example, the New York Stock Exchange monitors the performance of stocks that are traded on that exchange in New York City. The Nasdaq stock market includes about 3,600 stocks, with a concentration of technology stocks. Table 17.1 lists some of the most commonly cited measures of U.S. and international stock markets.

The trend in the stock market is generally up over time, but with some large dips along the way. Figure 17.6 shows the path of the Standard & Poor’s 500 index (which is measured on the left-hand vertical axis) and the Dow Jones Index (which is measured on the right-hand vertical axis). Broad stock market measures, like the ones we list here, tend to move together. The S&P 500 Index is the weighted average market capitalization of the firms selected to be in the index. The Dow Jones Industrial Average is the price weighted average of 30 industrial stocks tracked on the New York Stock Exchange.

When the Dow Jones average rises from 5,000 to 10,000, you know that the average price of the stocks in that index has roughly doubled. Figure 17.6 shows that stock prices did not rise much in the 1970s, but then started a steady climb in the 1980s. From 2000 to 2013, stock prices bounced up and down, but ended up at about the same level.

Table 17.2 shows the total annual rate of return an investor would have received from buying the stocks in the S&P 500 index over recent decades. The total return here includes both dividends paid by these companies and also capital gains arising from increases in the stock value. (For technical reasons related to how we calculate the numbers, the dividends and capital gains do not add exactly to the total return.) From the 1950s to the 1980s, the average firm paid annual dividends equal to about 4% of its stock value. Since the 1990s, dividends have dropped and now often provide a return closer to 1% to 2%. In the 1960s and 1970s, the gap between percent earned on capital gains and dividends was much closer than it has been since the 1980s. In the 1980s and 1990s, capital gains were far higher than dividends. In the 2000s, dividends remained low and, while stock prices fluctuated, they ended the decade roughly where they had started. In the 2010s, dividends remained low and stock prices increased, and this continued at the beginning of the 2020s.

The overall pattern is that stocks as a group have provided a high rate of return over extended periods of time, but this return comes with risks. The market value of individual companies can rise and fall substantially, both over short time periods and over the long run. During extended periods of time like the 1970s or the first decade of the 2000s, the overall stock market return can be quite modest. The stock market can sometimes fall sharply, as it did in 2008.

The bottom line on investing in stocks is that the rate of return over time will be high, but the risks are also high, especially in the short run. Liquidity is also high since one can sell stock in publicly held companies readily for spendable money.