The UK equity premium: 1901-2004

Andrew Vivian

    Research output: Contribution to journalArticlepeer-review

    9 Citations (Scopus)

    Abstract

    This paper examines the UK equity premium over more than a century using dividend growth to estimate expectations of capital gains employing the approach of Fama and French (2002). Over recent decades estimated equity premia implied by dividend growth have been much lower than that produced by average stock returns for the UK market as a whole; a finding corroborated by all economic sub-sectors. The empirical analysis suggests this is primarily due to a declining discount rate, during the latter part of the 20th century, which would rationally stimulate unanticipated equity price rises during this period. Thus, I conclude that historical stock returns over recent decades have been above investors' expectations.

    Original languageEnglish
    Pages (from-to)1496-1527
    Number of pages32
    JournalJournal of Business Finance and Accounting
    Volume34
    DOIs
    Publication statusPublished - Nov 2007

    Keywords

    • equity premium
    • expected returns
    • dividend growth predictability
    • STOCK RETURNS
    • RISK PREMIUM
    • INTERNATIONAL EVIDENCE
    • SHARE REPURCHASES
    • ASSET RETURNS
    • DIVIDENDS
    • EARNINGS
    • MARKETS
    • INFLATION
    • PRICES

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