The Equity Risk Premium Essays and Explorations

by Goetzmann, William N.; Ibbotson, Roger G.

• ISBN13: 9780195148145
• ISBN10: 0195148142
• Format: Hardcover
• Copyright: 2006-11-16
• Publisher: Oxford University Press

Summary

What is the return to investing in the stock market? Can we predict future stock market returns? How have equities performed over the last two centuries? The authors in this volume are among the leading researchers in the study of these questions. This book draws upon their research on thestock market over the past two dozen years. It contains their major research articles on the equity risk premium and new contributions on measuring, forecasting, and timing stock market returns, together with new interpretive essays that explore critical issues and new research on the topic ofstock market investing. This book is aimed at all readers interested in understanding the empirical basis for the equity risk premium. Through the analysis and interpretation of two scholars whose research contributions have been key factors in the modern debate over stock market perfomance, this volume engages thereader in many of the key issues of importance to investors. How large is the premium? Is history a reliable guide to predict future equity returns? Does the equity and cash flows of the market? Are global equity markets different from those in the United States? Do emerging markets offer higheror lower equity risk premia? The authors use the historical performance of the world's stock markets to address these issues.

Author Biography

Robert Ibbotson is an expert on capital market returns, cost of capital, and international investing. A member of the Yale School of Management faculty since 1986, he joined Yale from the University of Chicago, where he served as the director of the Center for Research in Security Prices (CRSP). He is Chairman and Founder of Ibbotson Associates in Chicago, New York, and Tokyo, which provides asset allocation advice, consulting, software, data, and financial publishing for financial institutions and investment advisors. He is also a Partner in Zebra Capital Management, LLC, which manages hedge funds. Professor Ibbotson is the author of numerous books and articles, including the annual Stocks, Bonds, Bills, and Inflation Yearbook.
Will Goetzmann is the Edwin J. Beinecke Professor of Finance and Management Studies at the Yale School of Management and a Research Associate of the National Bureau of Economic Research. He currently serves as the Director of the International Center for Finance at Yale, an interdisciplinary research organization focused on sponsoring and diseminating academic research in finance. He has taught at the Yale School of Management since 1994 and previously taught at Columbia Business School. He holds a B.A., an M.B.A., and a Ph.D. from Yale. An expert on a diverse range of investments, Will Goetzmann's research topics include the behavior of individual investors, global investing, financial market history, hedge funds, mutual funds, real estate, and art as an investment.

Table of Contents

Contributors	p. ix
Introduction: Opening Remarks and Motivation	p. 3
The Lessons of History
History and the Equity Risk Premium	p. 25
Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns (1926-1974)	p. 41
A New Historical Database for the NYSE 1815 to 1925: Performance and Predictability	p. 73
The United States Market Wealth Portfolio	p. 107
World Wealth: U.S. and Foreign Market Values and Returns	p. 138
Demand, Supply, and Building Block Forecasting Methods
How to Forecast Long-Run Asset Returns	p. 175
The Demand for Capital Market Returns: A New Equilibrium Theory	p. 184
The Supply of Capital Market Returns	p. 201
Building the Future from the Past	p. 212
Long-Run Stock Returns: Participating in the Real Economy	p. 214
Simulating and Forecasting
Stocks, Bonds, Bills, and Inflation: Simulations of the Future (1976-2000)	p. 237
Predictions of the Past and Forecasts for the Future: 1976-2025	p. 266
Short-Horizon Inputs and Long-Horizon Portfolio Choice	p. 270
Survivorship and Selection Bias
Survival	p. 283
Survivorship Bias in Performance Studies	p. 307
Global Stock Markets in the 20th Century	p. 335
Re-Emerging Markets	p. 365
Predicting Variations
The Dow Theory: William Peter Hamilton's Track Record Reconsidered	p. 407
Patterns in Three Centuries of Stock Market Prices	p. 431
Bootstrapping Tests of Long-Term Stock Market Efficiency	p. 454
Testing the Predictive Power of Dividend Yields	p. 473
A Longer Look at Dividend Yields	p. 494
Does Asset Allocation Policy Explain 40, 90, or 100 Percent of Performance?	p. 521
Suggested Readings	p. 535
Index	p. 539
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