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The UK Equity Premium: 1901-2004

32 Pages Posted: 11 Dec 2007  

Andrew Vivian

Loughborough University

Abstract

This paper examines the UK equity premium over more than a century using dividend growth to estimate expectations of capital gains employing the approach of Fama and French (2002). Over recent decades estimated equity premia implied by dividend growth have been much lower than that produced by average stock returns for the UK market as a whole; a finding corroborated by all economic sub-sectors. The empirical analysis suggests this is primarily due to a declining discount rate, during the latter part of the 20th century, which would rationally stimulate unanticipated equity price rises during this period. Thus, I conclude that historical stock returns over recent decades have been above investors' expectations.

Suggested Citation

Vivian, Andrew, The UK Equity Premium: 1901-2004. Journal of Business Finance & Accounting, Vol. 34, No. 9-10, pp. 1496-1527, November/December 2007. Available at SSRN: https://ssrn.com/abstract=1065857 or http://dx.doi.org/10.1111/j.1468-5957.2007.02065.x

Andrew Vivian (Contact Author)

Loughborough University ( email )

The Business School
Ashby Road
Loughborough LE11 3TU
Great Britain

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