The Equity Premium: 100 Years of Empirical Evidence from the UK

51 Pages Posted: 5 Aug 2005 Last revised: 22 Mar 2011

Date Written: October 2007


We examine the UK equity premium over more than a century using dividend growth to estimate expectations of capital gains employing the approach of Fama and French (2002). Over recent decades estimated equity premia implied by dividend growth have been much lower than that produced by average stock returns for the UK market as a whole; a finding corroborated by all economic sub-sectors. Our empirical analysis suggests this is primarily due to a declining discount rate, during the latter part of the 20th Century, which would rationally stimulate unanticipated equity price rises during this period. Thus, we conclude that historical stock returns over recent decades have been above investors' expectations.

Keywords: Equity Premium, Expected Returns, Dividend Growth Predictability

JEL Classification: G10, G12

Suggested Citation

Vivian, Andrew, The Equity Premium: 100 Years of Empirical Evidence from the UK (October 2007). Available at SSRN: or

Andrew Vivian (Contact Author)

Loughborough University ( email )

The Business School
Ashby Road
Loughborough LE11 3TU
Great Britain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics