Tax-Adjusted Market Risk Premiums in New Zealand: 1931-2002

Pacific-Basin Finance Journal, Vol. 12, No. 3, pp. 291-310, 2004

Posted: 12 Jan 2010

See all articles by Alastair Marsden

Alastair Marsden

University of Auckland - Business School

Martin Lally

Victoria University of Wellington

Date Written: 2004

Abstract

This paper documents historical returns to equities and long-term government bonds, bond yields and inflation rates in New Zealand over the period 1931-2002. Personal tax rates on various types of investment income are also estimated. This data is used to estimate the market risk premiums in two forms of the capital asset pricing model (CAPM). In particular, the market risk premium in the standard CAPM is estimated using the Ibbotson [Ibbotson Associates, 2000. Stocks, bonds, bills and inflation: 2000 year book] methodology, yielding an estimate of 0.058 relative to long-term government bond returns and 0.055 relative to bond yields. In addition, in respect of the tax-adjusted version of the CAPM [Cliffe and Marsden, Pac. Account. Rev. 4 (1992) 1; Lally, Pac. Account. Rev. 4 (1992) 31] that is now widely used in New Zealand, the market risk premium is estimated using parallel methodology, yielding estimates of 0.074 relative to bond returns and 0.072 relative to bond yields.

Keywords: Historical analysis, Equities, Government bonds, Yields, Inflation rate, New Zealand, CAPM

JEL Classification: G14, G32, C83, H25

Suggested Citation

Marsden, Alastair D.E. and Lally, Martin, Tax-Adjusted Market Risk Premiums in New Zealand: 1931-2002 (2004). Pacific-Basin Finance Journal, Vol. 12, No. 3, pp. 291-310, 2004. Available at SSRN: https://ssrn.com/abstract=1535046

Alastair D.E. Marsden

University of Auckland - Business School ( email )

Private Bag 92019
Room: C208
Auckland
New Zealand
64 9 373 7999 (Phone)
64 9 373 7406 (Fax)

Martin Lally (Contact Author)

Victoria University of Wellington ( email )

P.O. Box 600
Wellington 6001
New Zealand
64 4 471 5365 (Phone)
64 4 495 5076 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
522
PlumX Metrics