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A Meta-Analysis of the Equity Premium

Author

Listed:
  • Casper van Ewijk

    (CPB Netherlands Bureau for Economic Policy Analysis, The Hague, and University of Amsterdam)

  • Henri L.F. de Groot

    (CPB Netherlands Bureau for Economic Policy Analysis, The Hague, and VU University Amsterdam)

  • Coos Santing

    (Ministry of Finance, The Hague)

Abstract

The equity premium is a key parameter in asset allocation policies. There is a vigorous debate in the literature regarding the actual measurement of the equity premium, its size and the determinants of its variation. This study aims to take stock of this literature by means of 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 if measured by ex ante methods rather than ex post, in more recent periods, and for more developed countries. In addition, 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. Published in 'Journal of Empirical Finance' .

Suggested Citation

  • Casper van Ewijk & Henri L.F. de Groot & Coos Santing, 2010. "A Meta-Analysis of the Equity Premium," Tinbergen Institute Discussion Papers 10-078/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20100078
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    References listed on IDEAS

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    1. So, how large is the equity premium?
      by Economic Logician in Economic Logic on 2010-10-25 19:27:00

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    More about this item

    Keywords

    equity premium; meta-analysis;

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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