The Realized Equity Premium has been Higher than Expected: Further Evidence

Marco Taboga ()
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Marco Taboga: Bank of Italy

No 29, CeRP Working Papers from Center for Research on Pensions and Welfare Policies, Turin (Italy)

Abstract: We propose a new approach to the study of stock returns. We develop a simple model to show that, in the long run, the average rate of return on the market portfolio equals the average growth rate of income plus an average payout rate measuring the quantity of inancial resources distributed or absorbed by quoted firms. We exploit this framework to calculate expected returns using U.S. stock market data.

Pages: 31 pages
Date: 2002-12
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