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Abstract

We propose a new approach to the study of stock returns. We develop a simple model 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 inancial resources distributed or absorbed by quoted firms. We exploit this framework to calculate expected returns using U.S. stock market data.

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File URL: http://cerp.unito.it/index.php/en/publications/working-papers/91-the-realized-equity-premium-has-been-higher-than-expected-further-evidence
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Bibliographic Info

Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 29.

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Length: 31 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:crp:wpaper:29

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1. Constantinides,George & Duffie,Darrel, 1992. "Asset pricing with heterogeneous consumers," Discussion Paper Serie A 381, University of Bonn, Germany.
   
   • 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.
2. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
   
   • Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
3. Eugene F. Fama & Kenneth R. French, 2002. "The Equity Premium," Journal of Finance, American Finance Association, vol. 57(2), pages 637-659, 04.
   
   • Eugene Fama & F. & Kenneth R. French, . "The Equity Premium."," CRSP working papers 522, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
4. John H Cochrane, 2003. "Where is the Market Going: Uncertain Facts and Novel Theories," Levine's Working Paper Archive 618897000000000762, David K. Levine.
   
   • John H. Cochrane, 1997. "Where is the market going? Uncertain facts and novel theories," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 3-37.
   • John H. Cochrane, 1998. "Where is the Market Going? Uncertain Facts and Novel Theories," NBER Working Papers 6207, National Bureau of Economic Research, Inc.
5. 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.
6. Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
7. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
   
   • Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-43, June.
8. Peter A. Diamond, 1999. "What Stock Market Returns To Expect For The Future?," Issues in Brief ib-2, Center for Retirement Research.
9. Haitao Li & Yuewu Xu, 2002. "Survival Bias and the Equity Premium Puzzle," Journal of Finance, American Finance Association, vol. 57(5), pages 1981-1995, October.

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