High rates of growth in capital investment are associated with high rates of growth in the economy. However, these high growth rates are not necessarily linked to favorable equity returns. This may be the case because growth rates are already factored into equity prices. An additional explanation is that the source of equity returns is related to the rate of return on capital. If the rate of growth of capital is faster than the rate of economic growth, return on capital may decrease and equity returns may become less attractive.
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