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The U.S. Equity Return Premium: Past, Present and Future

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  • DeLong, J. Bradford
  • Magin, Konstantin A.

Abstract

For more than a century, diversified long-horizon investments in America's stock market have consistently received much higher returns than investors in bonds: a return gap averaging 6 percent per year. An enormous amount of creative and ingenious work by a great many economists has gone into seeking explanations for the so-called "equity premium return puzzle," but so far without a fully satisfactory answer. We first review the facts about the equity premium and then discuss a range of explanations that have been proposed. We conclude that the equity premium puzzle has not been solved: it remains a puzzle. And we anticipate that the equity return premium will continue, albeit at a smaller level than in the past--perhaps four percent per year.

Suggested Citation

  • DeLong, J. Bradford & Magin, Konstantin A., 2008. "The U.S. Equity Return Premium: Past, Present and Future," Department of Economics, Working Paper Series qt7vq683mh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:econwp:qt7vq683mh
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    References listed on IDEAS

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