Article on the equity risk premium debate

Recent HemScott article on the equity risk premium debate -

. . Views on what the historic equity-risk premium has been have been changing markedly recently. The annual Equity-Gilt Study, now produced annually by both Barclays Capital and Credit Suisse First Boston, has been seen as the Bible for all types of long-term analysis of equities. The database, which has been extended to cover the entire twentieth century, had in the past thrown up an equity-risk premium of somewhat over 6%.

However, in a mammoth piece of work published this year*, Professor Elroy Dimson, Professor Paul Marsh and Mike Staunton of the London Business School have shown that the true equity risk premium over the course of the twentieth century was somewhere between 4.4% and 4.8% for the UK. This reduction has been accepted by Barclays at least - in its 2002 edition of the Equity-Gilt Study it puts the equity-risk premium at 4.2% over the past 102 years. . .

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