This indicator provides a ratio reflecting the total
value of publicly traded companies relative to a nation’s gross domestic product, expressed as a percentage. It is calculated using a deflation method that combines current and previously recorded stock market capitalizations, adjusted for inflation through the consumer price index (CPI). Specifically, it incorporates end-of-period and average annual CPI to account for price changes over time, ensuring a more accurate economic portrayal. By examining this relationship, analysts can gauge the relative size of the equities market compared to overall economic activity, offering insights into market health, investor confidence, and potential economic growth trajectories. A rising percentage may indicate a flourishing economy, while a lower percentage could suggest economic stagnation or reduced corporate valuations.
Source: