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The Equity Premium and Structural Breaks


Lubos Pastor


University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Robert F. Stambaugh


University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

July 2000

NBER Working Paper No. w7778

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: 39

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Date posted: July 25, 2000  

Suggested Citation

Pastor, Lubos and Stambaugh, Robert F., The Equity Premium and Structural Breaks (July 2000). NBER Working Paper No. w7778. Available at SSRN: http://ssrn.com/abstract=235495

Contact Information

Lubos Pastor (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4080 (Phone)
773-702-0458 (Fax)
HOME PAGE: http://www.ChicagoGSB.edu/fac/lubos.pastor/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert F. Stambaugh
University of Pennsylvania - The Wharton School ( email )
The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

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