Capital Structure, Seniority, and Risk Premia: Evidence from the London Stock Exchange, 1870–1929

William Goetzmann and K. Rouwenhorst

No 34899, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use security-level data from the Investors Monthly Manual (IMM) to construct capital-weighted return indexes for the London Stock Exchange over the period 1870–1929. We find a significant and persistent equity risk premium of 3.7% over commercial paper and 4.5% over long-term government bonds, with significant co-movement with GDP growth. Returns decline monotonically with claim seniority: common stocks earn more than preferred shares, which earn more than corporate bonds. Both equity risk premia are highly significant, and the rolling 10-year return spread for stocks minus bonds is positive for every interval in the 60-year sample period.

JEL-codes: G1 G10 G12 G30 G32 N20 (search for similar items in EconPapers)
Date: 2026-02
New Economics Papers: this item is included in nep-cfn, nep-fdg, nep-fmk and nep-ifn
Note: AP
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