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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)

April 2001

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

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Date posted: July 20, 2000  

Suggested Citation

Fama, Eugene F. and French, Kenneth R., The Equity Premium (April 2001). EFMA 2001 Lugano Meetings; CRSP Working Paper No. 522. Available at SSRN: http://ssrn.com/abstract=236590 or http://dx.doi.org/10.2139/ssrn.236590

Contact Information

Eugene F. Fama (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)

Chicago Booth School of Business Logo

Kenneth R. French
Tuck School of Business at Dartmouth ( email )
Hanover, NH 03755
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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