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A meta-analysis of the equity premium

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  • van Ewijk, Casper
  • de Groot, Henri L.F.
  • Santing, A.J. (Coos)

Abstract

The equity premium is a key parameter in asset allocation policies. There is a vigorous debate in the literature regarding the actual measurement of the equity premium, its size and the determinants of its variation. This study aims to take stock of this literature by means of a meta-analysis. We identify how the size of the equity premium depends on the way it is measured, along with its evolution over time and its variation across regions in the world. We find that the equity premium is significantly lower if measured by ex ante methods rather than ex post, in more recent periods, and for more developed countries. In addition, looking at the underlying fundamentals, we find that larger volatility in GDP growth tends to raise the equity premium while a higher nominal interest rate has a negative impact on the equity premium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 19 (2012)
Issue (Month): 5 ()
Pages: 819-830

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Handle: RePEc:eee:empfin:v:19:y:2012:i:5:p:819-830

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Web page: http://www.elsevier.com/locate/jempfin

Related research

Keywords: Equity premium; Meta-analysis; Asset allocation policy; Spatial and temporal variation; Price for risk;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. So, how large is the equity premium?
    by Economic Logician in Economic Logic on 2010-10-25 14:27:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Stephan Fahr & Roberto Motto & Massimo Rostagno & Frank Smets & Oreste Tristani, 2011. "Lessons for monetary policy strategies from the recent past," Chapters, European Central Bank.
  2. Fahr, Stephan & Motto, Roberto & Rostagno, Massimo & Smets, Frank & Tristani, Oreste, 2011. "A monetary policy strategy in good and bad times: lessons from the recent past," Working Paper Series 1336, European Central Bank.
  3. Donkers, B. & Lourenço, C.J.S. & Dellaert, B.G.C. & Goldstein, D.G., 2013. "Using Preferred Outcome Distributions to Estimate Value and Probability Weighting Functions in Decisions under Risk," ERIM Report Series Research in Management ERS-2013-005-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  4. Nick Draper & Ed Westerhout & André Nibbelink, 2011. "Defined Benefit Pension Schemes: A Welfare Analysis of Risk Sharing and Labour Market Distortions," CPB Discussion Paper 177, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Bas Donkers & Carlos J.S. Lourenco & Benedict G.C. Dellaert & Daniel G. Goldstein, 2013. "Using Preferred Outcome Distributions to estimate Value and Probability Weighting Functions in Decisions under Risk," Tinbergen Institute Discussion Papers 13-065/VII, Tinbergen Institute.

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  1. Economic Logic blog
  2. Meta-Analysis in Economics

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