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History and the Equity Risk Premium

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  • William Goetzmann
  • Roger Ibbotson

Abstract

We summarize some of our own past findings and place them in the context of the historical development of the idea of the equity risk premium and its empirical measurement by financial economists. In particular, we focus on how the theory of compensation for investment risk developed in the 20th century in tandem with the empirical analysis of historical investment performance. Finally, we update our study of the historical performance of the New York Stock Exchange over the period 1792 to the present, and include a measure of the U.S. equity risk premium over more than two centuries. This last section is based upon indices constructed from individual stock and dividend data collected over a decade of research at the Yale School of Management, and contributions by other scholars.

Suggested Citation

  • William Goetzmann & Roger Ibbotson, 2005. "History and the Equity Risk Premium," Yale School of Management Working Papers ysm448, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm448
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    File URL: http://icfpub.som.yale.edu/publications/2382
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    References listed on IDEAS

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    1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    2. 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.
    3. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
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    Cited by:

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    2. Andrés Mauricio Gómez Sánchez & Jos� Gabriel Astaiza G�mez, 2015. "Ex-post Equity Risk Premiums and Economic Cycles in Colombia: An Empirical Research Using Kalman and Hodrick-Prescott Filters," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 7(1), pages 109-129.
    3. Alexander Harin, 2005. "A Rational Irrational Man," Public Economics 0511005, University Library of Munich, Germany.
    4. Alexander Harin, 2005. "Gains and losses. The same or different choices?," International Finance 0508004, University Library of Munich, Germany.
    5. Jie Zhu, 2019. "Estimating the Equity Risk Premium: The Case of Greater China," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 22(2), pages 195-212, July.
    6. Alexander Harin, 2005. "Gains and losses: the same or different choices? A “non-ideal” economics approach," International Finance 0509002, University Library of Munich, Germany.
    7. Mikhail Samonov & Nonna Sorokina, 2024. "A century of asset allocation crash risk," Journal of Asset Management, Palgrave Macmillan, vol. 25(4), pages 383-406, July.
    8. Christophe, Faugere, 2003. "A Required Yield Theory of Stock Market Valuation and Treasury Yield Determination," MPRA Paper 15579, University Library of Munich, Germany, revised 04 Jun 2009.
    9. Till, Gábor, 2021. "Az árfolyam-nyereség arány szerepe a német tőzsdei kereskedésben [The role of the P/E ratio in trading on the German stock exchange]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 815-846.
    10. Alexander Harin, 2005. "Scientific Revolution. A Farewell to EconWPA," Method and Hist of Econ Thought 0512003, University Library of Munich, Germany.
    11. Zheng, Hongxin & Lin, Xiaowei, 2025. "Toward harmonized aviation emission policies: Forecasting CO2 correlation structures across G10 countries," International Review of Economics & Finance, Elsevier, vol. 102(C).

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