The Expected Return on Risky Assets: International Long-run Evidence

53 Pages Posted: 26 Mar 2020 Last revised: 1 Jun 2021

See all articles by Dmitry Kuvshinov

Dmitry Kuvshinov

Universitat Pompeu Fabra

Kaspar Zimmermann

Leibniz Institute for Financial Research SAFE

Date Written: May 31, 2021

Abstract

This paper studies trends in the expected return on equity and housing and its relationship with the safe rate. Across 17 advanced economies, the expected risky return has been in steady long-run decline, but its trend is markedly different from that in the safe rate. As a consequence, the ex ante risk premium exhibits large secular movements, and risk premia and safe rates are strongly negatively correlated. We provide evidence linking these differential risky and safe rate trends to secular variation in macroeconomic risk.

Keywords: expected returns, risk premia, real interest rates, return predictability, long-run trends

JEL Classification: G12, G15, E43, E44, N20

Suggested Citation

Kuvshinov, Dmitry and Zimmermann, Kaspar, The Expected Return on Risky Assets: International Long-run Evidence (May 31, 2021). Available at SSRN: https://ssrn.com/abstract=3546005 or http://dx.doi.org/10.2139/ssrn.3546005

Dmitry Kuvshinov (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Kaspar Zimmermann

Leibniz Institute for Financial Research SAFE ( email )

Frankfurt am Main
Germany

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