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

  • Marco Taboga

    (CeRP)

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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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;
Contact details of provider: Web page: http://128.118.178.162

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  1. 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.
  2. Constantinides,George & Duffie,Darrel, 1992. "Asset pricing with heterogeneous consumers," Discussion Paper Serie A 381, University of Bonn, Germany.
  3. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  4. John H Cochrane, 2003. "Where is the Market Going: Uncertain Facts and Novel Theories," Levine's Working Paper Archive 618897000000000762, David K. Levine.
  5. Peter A. Diamond, 1999. "What Stock Market Returns To Expect For The Future?," Issues in Brief ib-2, Center for Retirement Research.
  6. Eugene F. Fama & Kenneth R. French, 2002. "The Equity Premium," Journal of Finance, American Finance Association, vol. 57(2), pages 637-659, 04.
  7. 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.
  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. Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
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