- CFA Exams
- 2023 Level II
- Topic 2. Economics
- Learning Module 9. Economic Growth
- Subject 2. Why does Potential Growth Matter to Investors?
Seeing is believing!
Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation.
Subject 2. Why does Potential Growth Matter to Investors? PDF Download
The long-term growth in earnings for a country cannot exceed the growth rate of potential GDP.
The stock price percentage change is the sum of percentage change in GDP, the share of earnings in GDP and the P/E ratio. In the long run the growth rate of GDP should dominate. The other two factors contribute more to the volatility of the market than to its return. Therefore, the drivers of potential GDP are ultimately the drivers of stock market price performance.
For fixed income investors the growth rate of potential GDP is also very important. It can be used to estimate inflationary pressures, real interest rates, and credit quality of fixed-income securities, etc.
User Contributed Comments 0
You need to log in first to add your comment.
I used your notes and passed ... highly recommended!
Lauren
My Own Flashcard
No flashcard found. Add a private flashcard for the subject.
Add