 Equity PremiumGian Maria Tomat ()
Chapter Chapter 3 in Financial Markets Efficiency and Economic Behaviour, 2023, pp 25-42 from Palgrave Macmillan Abstract: Abstract The equity premium is the excess rate of return of stocks over the riskless rate. The assumption of log-normality for gross asset returns implies, that the conditional expected excess rate of return is equal to the opposite of the covariance between the natural logarithm of the stochastic discount and the stock rate of return. The Sharpe ratio, modelled as the ratio between the expected excess rate of return and its standard deviation, defines a volatility bound for the stochastic discount factor. The monthly real excess return has been equal on average to 8.8 per cent at a yearly rate in a panel of 403 stocks for the five largest Euro area economies in the 2012m02–2015m06 sample period and its standard deviation is about ten times as large. Further estimates of the volatility bound can be obtained from the within and between components and provide evidence on the completeness of financial markets. The capital asset pricing model relates the excess return of stocks over the riskless rate to the excess return of the market portfolio. Date: 2023 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-031-36836-3_3 Ordering information: This item can be ordered from DOI: 10.1007/978-3-031-36836-3_3 Access Statistics for this chapter More chapters in Palgrave Macmillan Studies in Banking and Financial Institutions from Palgrave Macmillan |
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