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Interest rates and stock returns, 1856-2006
By Daniel Waldenström
 
In the present section, long-run evidence on the evolution of monthly Swedish market interest rates and stock prices and returns over the past one hundred and fifty years are presented. The period encompasses the evolution of national money and stock markets in Sweden and the industrialization era. Real interest rates, both short- and long-run, have declined secularly since the nineteenth century, with exception for a few periods of large political and macroeconomic volatility in the twentieth century. Real stock prices were largely constant since our first observation in January 1906 up to 1980. Thereafter they have increased substantially up until today. Real stock returns, which include reinvested dividends on top of the capital gains, increased constantly during the past century, but the increases after 1980 are unprecedented.
 
The interest rate data consist of short-run series, based on the official discount rate of the Swedish Riksbank and market yields of a Swedish 30-day Treasury bills (statsskuldsväxlar), and long-run series based on government bond yields with at least 10 years to maturity. Stock prices and dividend yields come from changes in the composite stock price index at the Stockholm Stock Exchange and dividends of companies listed at the exchange.
List of variables and their definitions:
NameExplanation
Stock price  indexComposite stock price index (exclusive of dividends) based on end-of-month quotes on the Stockholm Stock Exchange
Stock return indexComposite stock return index (with dividends reinvested) based on end-of-month quotes on the Stockholm Stock Exchange.
Dividend indexSwedish short-run risk-free interest rate, measured as the discount rate of the Riksbank (1856-1982) and Swedish 30-day Treasury bills (statsskuldsväxlar) after 1982.
Short-run yieldIndex number calculated for the short-run risk-free interest rate.
Short-run yield indexSwedish long-run government bond yield, measured as the consol yield between 1918 and 1950 and annual yield to maturity on 10-year government bonds after 1950.
Long-run yieldIndex number calculated from the long-run government bond price changes and the coupon rate.
Long-run yield indexIndex number for annual dividends paid out on stocks listed on the Stockholm Stock Exchange
DOCUMENTATION 
Stock and bonds 1856-2006 | 303 Kb
Longer description | 183 Kb

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