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Estimating the Equity Premium

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  • Campbell, John

Abstract

Finance theory restricts the time-series behaviour of valuation ratios and links the cross-section of stock prices to the level of the equity premium. This can be used to strengthen the evidence for predictability in stock returns. Steady-state valuation models are useful predictors of stock returns, given the persistence in valuation ratios. A steady-state approach suggests that the world geometric average equity premium fell considerably in the late twentieth century, rose modestly in the early years of the twenty-first century, and was almost 4% at the end of March 2007.

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  • Campbell, John, 2008. "Estimating the Equity Premium," Scholarly Articles 3196339, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:3196339
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    References listed on IDEAS

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    1. Campbell, John Y., 2001. "Why long horizons? A study of power against persistent alternatives," Journal of Empirical Finance, Elsevier, vol. 8(5), pages 459-491, December.
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    18. John Y. Campbell & Tuomo Vuolteenaho, 2004. "Bad Beta, Good Beta," American Economic Review, American Economic Association, vol. 94(5), pages 1249-1275, December.
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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