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The time-varying equity premium and the s&p 500 in the twentieth century

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journal contribution
posted on 26.06.2014, 11:25 authored by Mark Freeman
I present a new hindcast stock market index for the United States over the twentieth century. This is constructed by calibrating a rational asset pricing model that allows for a time-varying equity premium driven by heteroskedasticity in consumption growth. By incorporating this variation in risk, the mean square error of the generated index series, when compared to the observed levels of the S&P 500, is significantly reduced. The model also explains the broad magnitudes and timings of the major bull and bear markets of the twentieth century, particularly before 1973, and the excess volatility puzzle is largely resolved. © 2011 The Southern Finance Association and the Southwestern Finance Association.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of Financial Research

Volume

34

Issue

2

Pages

179 - 215

Citation

FREEMAN, M.C., 2011. The time-varying equity premium and the s&p 500 in the twentieth century. Journal of Financial Research, 34 (2), pp. 179 - 215

Publisher

Wiley © The Southern Finance Association and the Southwestern Finance Association

Version

AM (Accepted Manuscript)

Publication date

2011

Notes

This article was published in the Journal of Financial Research [© The Southern Finance Association and the Southwestern Finance Association] and the definitive version is available at: http://dx.doi.org/10.1111/j.1475-6803.2011.01288.x

ISSN

0270-2592

eISSN

1475-6803

Language

en

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Keywords

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