Premium
The Equity Premium
Author(s) -
Fama Eugene F.,
French Kenneth R.
Publication year - 2002
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00437
Subject(s) - economics , equity premium puzzle , return on equity , dividend , capital gain , earnings growth , rate of return , earnings , equity (law) , stock (firearms) , growth stock , econometrics , monetary economics , risk premium , stock market , finance , restricted stock , profitability index , geography , archaeology , political science , law , context (archaeology)
We estimate the equity premium using dividend and earnings growth rates to measure the expected rate of capital gain. Our estimates for 1951 to 2000, 2.55 percent and 4.32 percent, are much lower than the equity premium produced by the average stock return, 7.43 percent. Our evidence suggests that the high average return for 1951 to 2000 is due to a decline in discount rates that produces a large unexpected capital gain. Our main conclusion is that the average stock return of the last half‐century is a lot higher than expected.