The Worldwide Equity Premium: A Smaller Puzzle

Paul Marsh, Elroy Dimson

Research

41 Pages

This paper examines more than a century of global market history to reassess the equity risk premium across 17 countries. The authors find a 4.7% annualized world equity premium over Treasury bills, while arguing that forward looking expectations should likely be lower than historical experience suggests.

Key Takeaways

Global Premium Persisted: Across 106 years and 17 countries, the world equity index delivered a 4.7% annualized premium over U.S. Treasury bills.
Bonds Narrow The Gap: Using government bonds instead of Treasury bills as the risk free benchmark reduces the historical world equity premium to 4.0%.
Expectations Are Lower: The authors estimate a future world equity premium near 3% to 3.5% geometrically and roughly 4.5% to 5% arithmetically.
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