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Viewpoint: Estimating the equity premium


  • John Y. Campbell


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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  • John Y. Campbell, 2008. "Viewpoint: Estimating the equity premium," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 1-21, February.
  • Handle: RePEc:cje:issued:v:41:y:2008:i:1:p:1-21

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    References listed on IDEAS

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    JEL classification:

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


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