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The realized equity premium has been higher than expected: further evidence

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  • Marco Taboga

    (CeRP)

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 financial 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://128.118.178.162/eps/fin/papers/0210/0210004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0210004.

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Date of creation: 17 Oct 2002
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Handle: RePEc:wpa:wuwpfi:0210004

Note: Type of Document - LaTeX; prepared on IBM Pc; to print on HP;
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Web page: http://128.118.178.162

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Keywords: equity premium puzzle realized risk finance expected;

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  1. Eugene F. Fama & Kenneth R. French, 2002. "The Equity Premium," Journal of Finance, American Finance Association, vol. 57(2), pages 637-659, 04.
  2. John H. Cochrane, 1998. "Where is the Market Going? Uncertain Facts and Novel Theories," NBER Working Papers 6207, National Bureau of Economic Research, Inc.
  3. Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
  4. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  5. Constantinides,George & Duffie,Darrel, 1992. "Asset pricing with heterogeneous consumers," Discussion Paper Serie A 381, University of Bonn, Germany.
  6. 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.
  7. 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. 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.
  9. Peter A. Diamond, 1999. "What Stock Market Returns To Expect For The Future?," Issues in Brief ib-2, Center for Retirement Research.
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