Viewpoint: Estimating the equity premium
John Campbell ()
Canadian Journal of Economics, 2008, vol. 41, issue 1, 1-21
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.
JEL-codes: G12 (search for similar items in EconPapers)
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