A Meta-Analysis of the Equity Premium
Casper Van Ewijk
CPB Netherlands Bureau of Economic Policy Analysis
Henri L. F. De Groot
VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute
affiliation not provided to SSRN
September 12, 2010
Netspar Discussion Paper No. 09/2010-050
The equity premium is a key parameter in asset allocation policies. There is a vigorous debate in the literature regarding the actual measurement of the equity premium, its size and the determinants of its variation. This study aims to take stock of this literature by means of a meta-analysis. We identify how the size of the equity premium depends on the way it is measured, along with its evolution over time and its variation across regions in the world. We find that the equity premium is significantly lower if measured by ex ante methods rather than ex post, in more recent periods, and for more developed countries. In addition, looking at the underlying fundamentals, we find that larger volatility in GDP growth tends to raise the equity premium while a higher nominal interest rate has a negative impact on the equity premium.
Number of Pages in PDF File: 28
Keywords: Equity Premium, Meta-Analysis
JEL Classification: D53, E44, G12, N20
Date posted: November 12, 2010
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