EconPapers    
Economics at your fingertips  
 

The equity premium and the required stock returns in a Tobin's q model with a stochastic discount factor

Jakob Madsen () and Ratbek Dzhumashev ()

Applied Economics, 2012, vol. 44, issue 6, 683-694

Abstract: Based on the production-based Capital Asset Pricing Model (CAPM) principle, this article shows that earnings per unit of capital and the output capital ratio are excellent measures of expected stock returns because they are only temporarily affected by earnings shocks but affected permanently by changes in required share returns. Evidence for the US suggests that the risk premium is currently about 2% and that the covariance between consumption growth and expected returns is substantially lower than previously thought of; thus, reducing the equity puzzle substantially.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2010.518755 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:44:y:2012:i:6:p:683-694

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2010.518755

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2022-01-14
Handle: RePEc:taf:applec:44:y:2012:i:6:p:683-694