The Equity Premium and Structural Breaks

40 Pages Posted: 27 Oct 1998

See all articles by Robert F. Stambaugh

Robert F. Stambaugh

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

Lubos Pastor

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

Multiple version iconThere are 2 versions of this paper

Date Written: June 2000

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.

JEL Classification: G12,G10,C11

Suggested Citation

Stambaugh, Robert F. and Pastor, Lubos, The Equity Premium and Structural Breaks (June 2000). AFA 2001 New Orleans; CRSP Working Paper No. 519. Available at SSRN: https://ssrn.com/abstract=130208 or http://dx.doi.org/10.2139/ssrn.130208

Robert F. Stambaugh (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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Lubos Pastor

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://www.ChicagoGSB.edu/fac/lubos.pastor/

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