28 Pages Posted: 12 Nov 2010
Date Written: September 12, 2010
The equity premium is a key parameter in asset allocation policies. There is a vigorous debate in the literature regarding the actual measurement of the equity premium, its size and the determinants of its variation. This study aims to take stock of this literature by means of a meta-analysis. We identify how the size of the equity premium depends on the way it is measured, along with its evolution over time and its variation across regions in the world. We find that the equity premium is significantly lower if measured by ex ante methods rather than ex post, in more recent periods, and for more developed countries. In addition, looking at the underlying fundamentals, we find that larger volatility in GDP growth tends to raise the equity premium while a higher nominal interest rate has a negative impact on the equity premium.
Keywords: Equity Premium, Meta-Analysis
JEL Classification: D53, E44, G12, N20
Suggested Citation: Suggested Citation
Van Ewijk, Casper and de Groot, Henri L. F. and Santing, Coos, A Meta-Analysis of the Equity Premium (September 12, 2010). Netspar Discussion Paper No. 09/2010-050. Available at SSRN: https://ssrn.com/abstract=1708100 or http://dx.doi.org/10.2139/ssrn.1708100
By Ivo Welch