The Equity Risk Premium and Six Decades of Risk and Return in Canadian Equity Markets (1958 – 2017)

17 Pages Posted: 7 Aug 2018

See all articles by Kobana Abukari

Kobana Abukari

Laurentian University

Vijay M. Jog

Carleton University - Eric Sprott School of Business

Date Written: July 17, 2018

Abstract

We investigate the risk and return relationships of stocks, bonds and T-bills over the past six decades in Canada (1958 to 2017) and provide insights on some conventional folklore on a myriad of risk and return issues including investment duration. We also investigate the impact of NAFTA and the financial crisis on risk and returns as well as the impact of investment management fees on investor wealth. Our overall results indicate that the arithmetic risk premium in the Canadian equity market is 5.3% on short term T-bills and 3% on long term government bonds. The corresponding values for geometric average are 4.1% and 2.2%, respectively. The paper additionally presents many relevant stylized facts including the observation that the total shareholder return (TSR) is entirely attributable to the assumption about reinvestment of dividends.

Keywords: equity risk premium, market returns, financial crisis, NAFTA, investment horizon

JEL Classification: G10, G12, G15

Suggested Citation

Abukari, Kobana and Jog, Vijay M., The Equity Risk Premium and Six Decades of Risk and Return in Canadian Equity Markets (1958 – 2017) (July 17, 2018). Available at SSRN: https://ssrn.com/abstract=3215600 or http://dx.doi.org/10.2139/ssrn.3215600

Kobana Abukari (Contact Author)

Laurentian University ( email )

935 Ramsey Lake Road
Sudbury P3E 2C6, Ontario P3E 2C6
Canada

Vijay M. Jog

Carleton University - Eric Sprott School of Business ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S SB6
Canada
613-520-2600 (Phone)
613-520-4427 (Fax)

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