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The equity premium in the long-run

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  • Marco Taboga

Abstract

A new approach to the study of stock returns is proposed. A simple model is developed 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. This framework is exploited to calculate expected returns using US stock market data.

Suggested Citation

  • Marco Taboga, 2004. "The equity premium in the long-run," Applied Financial Economics, Taylor & Francis Journals, vol. 14(9), pages 645-650.
    • Handle: RePEc:taf:apfiec:v:14:y:2004:i:9:p:645-650
    DOI: 10.1080/0960310042000233412
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    References listed on IDEAS

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    1. 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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    6. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    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.
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    Cited by:

    1. Philip Jagd & Jakob Madsen, 2009. "Myopic loss aversion, bond returns and the equity premium puzzle," Applied Financial Economics, Taylor & Francis Journals, vol. 19(17), pages 1383-1390.

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