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Journal Article

The Equity Premium

Eugene F. Fama and Kenneth R. French
The Journal of Finance
Vol. 57, No. 2 (Apr., 2002), pp. 637-659
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/2697753
Page Count: 23
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Equity Premium
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Abstract

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.

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