The Worldwide Equity Premium: A Smaller Puzzle
- 7 April 2006
- preprint
- Published by Elsevier in SSRN Electronic Journal
Abstract
We use a new database of long-run stock, bond, bill, inflation, and currency returns to estimate the equity risk premium for 17 countries and a world index over a 106-year interval. Taking U.S. Treasury bills (government bonds) as the risk-free asset, the annualised equity premium for the world index was 4.7% (4.0%). We report the historical equity premium for each market in local currency and US dollars, and decompose the premium into dividend growth, multiple expansion, the dividend yield, and changes in the real exchange rate. We infer that investors expect a premium on the world index of around 3-3 1/2% on a geometric mean basis, or approximately 4 1/2-5% on an arithmetic basis.Keywords
This publication has 59 references indexed in Scilit:
- The Equity Risk Premium in September 2005: Evidence from the Global CFO Outlook SurveySSRN Electronic Journal, 2005
- Market Risk Premium: Required, Historical and ExpectedSSRN Electronic Journal, 2004
- 'Irrational Exuberance' in the Long History of the UK Stock MarketSSRN Electronic Journal, 2004
- The great reversals: the politics of financial development in the twentieth centuryPublished by Elsevier ,2003
- The Equity PremiumThe Journal of Finance, 2002
- Characteristics, Covariances, and Average Returns: 1929 to 1997The Journal of Finance, 2000
- Is There an Equity Premium Puzzle in Italy? A look at Asset Returns, Consumption and Financial Structure Data over the Last CenturySSRN Electronic Journal, 1999
- La rentabilité réelle des actifs boursiers de 1950 à 1992Economie et Statistique, 1995
- Share Markets and Portfolio Theory 2nd edition, edited by R. Ball, P. Brown, F.J. Finn and R.R. Officer (University of Queensland Press, Brisbane, 1989), pp. xx + 472, paper $49.95, ISBN 0 7022 2163 5Prometheus, 1989
- Le pouvoir d'achat des obligations, des actions et de l'or de 1914 à 1976Economie et Statistique, 1977