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The Equity Premium And Structural BreaksRobert F. StambaughUniversity of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER) Lubos PastorUniversity of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER) June 2000 AFA 2001 New Orleans; CRSP Working Paper No. 519 Abstract: A long return history is useful in estimating the current equity premium even if the historical distribution has experienced structural breaks. The long series helps not only if the timing of breaks is uncertain but also if one believes that large shifts in the premium are unlikely or that the premium is associated, in part, with volatility. Our framework incorporates these features along with a belief that prices are likely to move opposite to contemporaneous shifts in the premium. The estimated premium since 1834 fluctuates between four and six percent and exhibits its sharpest drop in the last decade.
Number of Pages in PDF File: 40 JEL Classification: G12,G10,C11 working papers seriesDate posted: October 27, 1998Suggested CitationContact Information
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