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.

Picture Stock Exchange composite price index 1906 to 2006

List of variables and their definitions:

Name Explanation
Stock price  index Composite stock price index (exclusive of dividends) based on end-of-month quotes on the Stockholm Stock Exchange
Stock return index Composite stock return index (with dividends reinvested) based on end-of-month quotes on the Stockholm Stock Exchange.
Dividend index Swedish 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 yield Index number calculated for the short-run risk-free interest rate.
Short-run yield index Swedish 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 yield Index number calculated from the long-run government bond price changes and the coupon rate.
Long-run yield index Index number for annual dividends paid out on stocks listed on the Stockholm Stock Exchange

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