Viewpoint: Estimating the equity premium

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Publication Details

Output type: Other

Author list: Campbell JY

Publisher: Wiley

Publication year: 2008

Journal: Canadian Journal of Economics (0008-4085)

Volume number: 41

Issue number: 1

Start page: 1

End page: 21

Number of pages: 21

ISSN: 0008-4085

eISSN: 1540-5982

Languages: English-Great Britain (EN-GB)

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Open access status: green

Full text URL: http://psc.ky.gov/pscecf/2012-00221/rateintervention%40ag.ky.gov/10252012c/Campbell_2008_-_Viewpoint-_Estimating_the_Equity_Premium.pdf

Abstract

Finance theory restricts the time-series behaviour of valuation ratios and links the cross-section of stock prices to the level of the equity premium. This can be used to strengthen the evidence for predictability in stock returns. Steady-state valuation models are useful predictors of stock returns, given the persistence in valuation ratios. A steady-state approach suggests that the world geometric average equity premium fell considerably in the late twentieth century, rose modestly in the early years of the twenty-first century, and was almost 4% at the end of March 2007.

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