The dynamics of U.S. equity risk premia: lessons from professionals'view
AbstractSemi-annual surveys carried out by J. Livingston on a panel of experts have enabled us to compute the expected returns over the time span 1-semester and 2-semesters ahead on a portfolio made up of US industrial stocks. We calculated about 3000 individual ex-ante equity risk premia over the period 1952 to 1993 (82 semesters) defined as the difference between these expected stock returns and the risk-free forward rate given by zero coupon bonds. Unlike any other study, our contribution is to analyse premia deduced from surveys data, at the micro level, per date and over a long period. Three main conclusions may be drawn from our analysis of these ex-ante premia. First, the mean values of these premia are closer to the predictions derived from the consumption-based asset pricing theory than the ones obtained for the ex-post premia. Second, the experts' professional affiliation appears to be a significant criterion in discriminating premia. Third, in accordance with the Arbitrage Pricing Theory, individual ex-ante premia depend both on macroeconomic and idiosyncratic common factors: the former are represented by a set of macroeconomic variables observable by all agents, and the latter by experts’ personal forecasts about the future state of the economy, as defined by expected inflation and industrial production growth rate.
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Bibliographic InfoPaper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2009-25.
Length: 45 pages
Date of creation: 2009
Date of revision:
Stock price expectations; equity risk premium; survey micro data;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
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