CRIEFF Discussion Paper Number 0702
The Equity
Premium: UK Industry Evidence.
Andrew Vivian
Abstract
Recent US research has suggested that market expected
returns have fallen. Most studies propose this fall in market expected returns occurred
during the 1990’s. Our UK empirical analysis finds a fall in expected returns
in the 1990’s for the market index, but, in general, this is not evident across
many segments of the market. Specifically, we find for the majority of UK
industries a) over recent decades there has not been a general or overall fall
in expected returns and b) there was not a common decline in expected returns
during the 1990’s. We propose changing industry composition of the market
portfolio rather than a decline in systematic risk is primarily responsible for
this recent proposed fall in value-weighted market returns.
JEL Classifications: G12, G15
Keywords:
Equity Premium, Declining Returns, Industry Composition
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