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The Equity Premium: 101 Years of Empirical Evidence from the UK

Опубликовано на портале: 21-06-2006
Working Paper Series (SSRN). 2005. 
We examine the UK equity premium over more than a century using dividend growth to estimate expectations of capital gains employing the approach of Fama and French (2002). Since 1951 estimated equity premia implied by dividend growth have been much lower than that produced by average stock returns for the UK market as a whole; a finding corroborated by almost every industry sub-sector. Our empirical analysis suggests this is primarily due to a declining discount rate, during the latter part of the 20th Century, which would rationally stimulate unanticipated equity price rises during this period. Thus, we conclude that historical stock returns over recent decades have been above investors' expectations.

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