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A meta-analysis of the equity premium

  • Casper van Ewijk


  • C. Santing

The literature on the equity premium vigorously debates how to measure the premium, what is its size and what determines its variation. This study provides a quantitative survey of the literature through 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 in measurements by ex ante rather than ex post methods, in more recent periods, and�in more developed countries. 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. �

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 156.

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Date of creation: Aug 2010
Date of revision:
Handle: RePEc:cpb:discus:156
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  12. 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.
  13. 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.
  14. 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.
  15. Brown, Stephen J & Goetzmann, William N & Ross, Stephen A, 1995. " Survival," Journal of Finance, American Finance Association, vol. 50(3), pages 853-73, July.
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  17. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  18. 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.
  19. 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.
  20. 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.
  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.
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  23. 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.
  24. 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.
  25. 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.
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  27. Andrew Vivian, 2007. "The UK Equity Premium: 1901-2004," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9-10), pages 1496-1527.
  28. Abbas Mirakhor & S. Nuri Erbas, 2007. "The Equity Premium Puzzle, Ambiguity Aversion, and Institutional Quality," IMF Working Papers 07/230, International Monetary Fund.
  29. World Bank, 2006. "World Development Indicators 2006," World Bank Publications, The World Bank, number 8151.
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