The Realized Equity Premium has been Higher than Expected: Further Evidence
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 inancial 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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"Asset pricing with heterogeneous consumers,"
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381, University of Bonn, Germany.
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CRSP working papers
522, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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Journal of Political Economy,
University of Chicago Press, vol. 98(3), pages 519-543, June.
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- Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
- Peter A. Diamond, 1999. "What Stock Market Returns To Expect For The Future?," Issues in Brief ib-2, Center for Retirement Research.
- 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.
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