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The equity premium in the long-run

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Author Info
Marco Taboga

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Abstract

A new approach to the study of stock returns is proposed. A simple model is developed to show that, in the long run, the average rate of return on the market portfolio equals the average growth rate of income plus an average payout rate measuring the quantity of financial resources distributed or absorbed by quoted firms. This framework is exploited to calculate expected returns using US stock market data.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 9 (June)
Pages: 645-650
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Handle: RePEc:taf:apfiec:v:14:y:2004:i:9:p:645-650

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  1. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
    Other versions:
  2. Brown, Stephen J & Goetzmann, William N & Ross, Stephen A, 1995. " Survival," Journal of Finance, American Finance Association, vol. 50(3), pages 853-73, July. [Downloadable!] (restricted)
  3. Siegel, Jeremy J & Thaler, Richard H, 1997. "Anomalies: The Equity Premium Puzzle," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 191-200, Winter. [Downloadable!] (restricted)
  4. Constantinides, George M & Duffie, Darrell, 1996. "Asset Pricing with Heterogeneous Consumers," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 219-40, April. [Downloadable!] (restricted)
    Other versions:
  5. Peter A. Diamond, 2003. "What Stock Market Returns To Expect For The Future?," Issues in Brief ib-2, Center for Retirement Research. [Downloadable!]
  6. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April. [Downloadable!] (restricted)
  7. John Y. Campbell & Robert J. Shiller, 2001. "Valuation Ratios and the Long-run Stock Market Outlook: An Update," Cowles Foundation Discussion Papers 1295, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  8. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March. [Downloadable!] (restricted)
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