Equities Market Level

Andrew Ang

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

July 25, 2012

Equities have exhibited high returns relative to bonds and cash (bills) historically. The equity risk premium is a reward for bearing losses during bad times, where the risks of bad times are defined by low consumption growth, disasters, or long-run risks. Other investor characteristics including income and beliefs may also affect the equity risk premium. Equities have historically been a surprisingly poor hedge against inflation. While theory suggests that equity risk premiums are predictable, theory also suggests that the predictability is hard to detect statistically and this is verified empirically. Equity volatility, on the other hand, is much more predictable than equity risk premiums.

Number of Pages in PDF File: 49

Keywords: Equity premium, GARCH, Predictability, Habit, Long-run risk, Disasters, Heterogeneous agents, Spurious regression

JEL Classification: C13, C22, D51, E21, G12

Open PDF in Browser Download This Paper

Date posted: July 26, 2012  

Suggested Citation

Ang, Andrew, Equities Market Level (July 25, 2012). Available at SSRN: http://ssrn.com/abstract=2117625 or http://dx.doi.org/10.2139/ssrn.2117625

Contact Information

Andrew Ang (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN

Paper statistics
Abstract Views: 4,053
Downloads: 1,139
Download Rank: 11,052

© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.547 seconds