Handbook of the Equity Risk Premium

CHAPTER 12 History and the Equity Risk Premium

William N. Goetzmann

Roger G. Ibbotson

1. Introduction

2. Historical Conception and Measurement of the Equity Risk Premium

3. Stocks, Bonds, Bills, and Inflation

4. History as Written by the Winners?

5. The Equity Premium Over the Very Long Term

6. Conclusion 527 References

JEL Classification: G12

Keywords: monopolistic advantage, insurable risk, uncertainty, stock price indices, capital-weighted, re-investment of dividends, Capital Asset Pricing Model, government bond data, Ibbotson Associates, Vanguard, Boston money market, ex ante measurement

1. INTRODUCTION

The equity premium puzzle posed in Mehra and Prescott (1985) was motivated by historical evidence on the return of U.S. stocks ...