The Equity Premium
Eugene F. Fama
University of Chicago - Finance
Kenneth R. French
Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)
EFMA 2001 Lugano Meetings; CRSP Working Paper No. 522
We estimate the equity premium using dividend and earnings growth rates to measure the expected rate of capital gain. Our estimates for 1951-2000, 2.55% and 4.32%, are much lower than the equity premium produced by the average stock return, 7.43%. Our evidence suggests that the high average return for 1951-2000 is due to a decline in discount rates that produces large unexpected capital gains. Our main conclusion is that the stock return of the last half-century is a lot higher than expected.
Number of Pages in PDF File: 29
JEL Classification: G12
Date posted: July 20, 2000
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