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What long-run returns can investors expect from the stock market?

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Listed:
  • David G. Bishop
  • John E. Golob

Abstract

This article analyzes how macroeconomic fundamentals and high price-earnings ratios on stocks will affect long-run returns. The first section reviews the stock market's recent performance and describes how investors and analysts have reacted to this performance. The second section shows how macroeconomic trends imply that long-run returns will remain close to their 10 percent historical average. The third section analyzes the long-run relationship between price-earnings ratios and returns. The section shows that high price-earnings ratios are consistent with lower long-run returns, and argues returns may have declined because the stock market is perceived as less risky.

Suggested Citation

  • David G. Bishop & John E. Golob, 1997. "What long-run returns can investors expect from the stock market?," Economic Review, Federal Reserve Bank of Kansas City, vol. 82(Q III), pages 5-20.
    • Handle: RePEc:fip:fedker:y:1997:i:qiii:p:5-20:n:v.82no.3
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    File URL: https://www.kansascityfed.org/documents/993/1997-What%20Long-Run%20Returns%20Can%20Investors%20Expect%20From%20the%20Stock%20Market%3F.pdf
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    References listed on IDEAS

    as
    1. Campbell, John & Shiller, Robert, 1988. "Stock Prices, Earnings, and Expected Dividends," Scholarly Articles 3224293, Harvard University Department of Economics.
    2. Campbell, John Y & Shiller, Robert J, 1988. " Stock Prices, Earnings, and Expected Dividends," Journal of Finance, American Finance Association, vol. 43(3), pages 661-676, July.
    3. Jeremy J. Siegel & Richard H. Thaler, 1997. "Anomalies: The Equity Premium Puzzle," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 191-200, Winter.
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    Cited by:

    1. Samson Edo, 2018. "Private capital inflows and stock market interface in sub-Saharan Africa," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 65(4), pages 507-538, December.
    2. repec:kap:iaecre:v:16:y:2010:i:3:p:269-281 is not listed on IDEAS
    3. Nicholas Apergis & John Sorros, 2011. "Long-Term Debt and the Value of the Firm,Evidence from International Listed Manufacturing Firms," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 60-72, February.
    4. Nicholas Apergis & John Sorros, 2010. "Disaggregated Earnings and Stock Prices: Evidence from International Listed Shipping Firms," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 16(3), pages 269-281, August.

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