Advanced Search
MyIDEAS: Login

A Meta-Analysis of the Equity Premium

Contents:

Author Info

  • Casper van Ewijk

    (CPB Netherlands Bureau for Economic Policy Analysis, The Hague, and University of Amsterdam)

  • Henri L.F. de Groot

    (CPB Netherlands Bureau for Economic Policy Analysis, The Hague, and VU University Amsterdam)

  • Coos Santing

    (Ministry of Finance, The Hague)

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. Forthcoming in 'Journal of Empirical Finance' .

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://papers.tinbergen.nl/10078.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-078/3.

as in new window
Length:
Date of creation: 23 Aug 2010
Date of revision:
Handle: RePEc:dgr:uvatin:20100078

Contact details of provider:
Web page: http://www.tinbergen.nl

Related research

Keywords: equity premium; meta-analysis;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. repec:dgr:uvatin:2002041 is not listed on IDEAS
  2. Siegel, Jeremy J., 1992. "The real rate of interest from 1800-1990 : A study of the U.S. and the U.K," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 227-252, April.
  3. John Y. Campbell, 2008. "Viewpoint: Estimating the equity premium," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 1-21, February.
  4. De Santis Massimiliano, 2007. "Movements in the Equity Premium: Evidence from a Time-Varying VAR," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 11(4), pages 1-41, December.
  5. Olivier J. Blanchard, 1993. "Movements in the Equity Premium," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 75-138.
  6. Kyriacos Kyriacou & Jakob B. Madsen & Bryan Mase, 2006. "Does inflation exaggerate the equity premium?," Journal of Economic Studies, Emerald Group Publishing, vol. 33(5), pages 344-356, November.
  7. Fernandez, Pablo, 2009. "The equity premium in 150 textbooks," IESE Research Papers D/829, IESE Business School.
  8. Phillippe Weil, 1997. "The Equity Premium Puzzle and the Risk-Free Rate Puzzle," Levine's Working Paper Archive 1833, David K. Levine.
  9. Robert J. Barro, 2005. "Rare Events and the Equity Premium," NBER Working Papers 11310, National Bureau of Economic Research, Inc.
  10. Martin Lettau & Sydney Ludvigson & Jessica Wachter, 2005. "The declining equity premium: what role does macroeconomic risk play?," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  11. 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.
  12. World Bank, 2006. "World Development Indicators 2006," World Bank Publications, The World Bank, number 8151, October.
  13. Brown, Stephen J & Goetzmann, William N & Ross, Stephen A, 1995. " Survival," Journal of Finance, American Finance Association, vol. 50(3), pages 853-73, July.
  14. John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
  15. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  16. Fabio Canova & Gianni De Nicoló, 2003. "The Properties of the Equity Premium and the Risk-Free Rate: An Investigation Across Time and Countries," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 4.
  17. Shackman, Joshua D., 2006. "The equity premium and market integration: Evidence from international data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 155-179, April.
  18. Raymond J.G.M. Florax & Henri L.F. de Groot & Ruud A. de Mooij, 2002. "Meta-analysis: A Tool for Upgrading Inputs of Macroeconomic Policy Models," Tinbergen Institute Discussion Papers 02-041/3, Tinbergen Institute.
  19. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  20. Roger G. Ibbotson & Peng Chen, 2003. "Long-Run Stock Returns: Participating in the Real Economy," Yale School of Management Working Papers ysm354, Yale School of Management.
  21. Lemke, Wolfgang & Werner, Thomas, 2009. "The term structure of equity premia in an affine arbitrage-free model of bond and stock market dynamics," Working Paper Series 1045, European Central Bank.
  22. Philippe Jorion & William N. Goetzmann, 1999. "Global Stock Markets in the Twentieth Century," Journal of Finance, American Finance Association, vol. 54(3), pages 953-980, 06.
  23. Ville, Simon, 2006. "The Equity Premium Puzzle: Australia and the United States in Comparative Perspective," Economics Working Papers wp06-25, School of Economics, University of Wollongong, NSW, Australia.
  24. Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
  25. Kocherlakota, N., 1995. "The Equity Premium: It's Still a Puzzle," Working Papers 95-05, University of Iowa, Department of Economics.
  26. James Claus, 2001. "Equity Premia as Low as Three Percent? Evidence from Analysts' Earnings Forecasts for Domestic and International Stock Markets," Journal of Finance, American Finance Association, vol. 56(5), pages 1629-1666, October.
  27. Fernandez, Pablo, 2009. "Market risk premium used in 2008 by Professors: A survey with 1,400 answers," IESE Research Papers D/796, IESE Business School.
  28. Ravi Jagannathan & Ellen R. McGrattan & Anna Scherbina, 2001. "The Declining U.S. Equity Premium," NBER Working Papers 8172, National Bureau of Economic Research, Inc.
  29. Jakob Madsen & Ratbek Dzhumashev, 2009. "The equity premium puzzle and the ex post bias," Applied Financial Economics, Taylor & Francis Journals, vol. 19(2), pages 157-174.
  30. Ivo Welch, 2000. "Views of Financial Economists on the Equity Premium and on Professional Controversies," Yale School of Management Working Papers ysm122, Yale School of Management.
  31. Andrew Vivian, 2007. "The UK Equity Premium: 1901-2004," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9-10), pages 1496-1527.
  32. Abbas Mirakhor & S. Nuri Erbas, 2007. "The Equity Premium Puzzle, Ambiguity Aversion, and Institutional Quality," IMF Working Papers 07/230, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

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.
as in new window

Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. repec:dgr:uvatin:2013065 is not listed on IDEAS
  5. Stephan Fahr & Roberto Motto & Massimo Rostagno & Frank Smets & Oreste Tristani, 2011. "Lessons for monetary policy strategies from the recent past," Chapters, European Central Bank.

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. Meta-Analysis in Economics
  2. Economic Logic blog

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dgr:uvatin:20100078. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.