Global Evidence on the Equity Risk Premium

Journal of Applied Corporate Finance, Vol 15, No 4, pages 27–34

LBS Accounting Subject Area Working Paper No. IFA 385

15 Pages Posted: 11 Aug 2003 Last revised: 20 Mar 2016

See all articles by Elroy Dimson

Elroy Dimson

University of Cambridge - Judge Business School; European Corporate Governance Institute (ECGI)

Paul Marsh

London Business School - Institute of Finance and Accounting

Mike Staunton

London Business School - Institute of Finance and Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2003

Abstract

Most long-run empirical research on the historical risk premium has focused on the experience of the United States. However, the United States has been a remarkably successful economy, making it unlikely that the US risk premium is representative. Until recently, evidence on the risk premium in most other countries has typically been over only relatively brief intervals during the latter part of the twentieth century. We extend the evidence by examining equity, bond, and bill returns in 16 different countries over the 103-year period from 1900 to 2002. We show that the equity risk premium has typically been lower than most previous research has indicated. Finally, we argue that even this lower figure for the historical risk premium is still an overestimate of the likely future risk premium.

Keywords: Equity risk premium, Long-term returns, Financial history, Survivorship, Required rate of return

JEL Classification: F30, G10, G12, G15, G31, N20

Suggested Citation

Dimson, Elroy and Marsh, Paul and Staunton, Mike, Global Evidence on the Equity Risk Premium (August 1, 2003). Journal of Applied Corporate Finance, Vol 15, No 4, pages 27–34, LBS Accounting Subject Area Working Paper No. IFA 385, Available at SSRN: https://ssrn.com/abstract=431901 or http://dx.doi.org/10.2139/ssrn.431901

Elroy Dimson

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 700 607 7390 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Paul Marsh (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Mike Staunton

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

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