Equity Premia Around the World

Elroy Dimson, Paul Marsh

Research

19 Pages

The authors examine long term equity premiums across 19 countries using returns from 1900 through 2010. They find equities rewarded risk everywhere, but argue historical outcomes benefited from unusually favorable conditions, leaving the expected annualized premium nearer 3% to 3.5% than commonly cited estimates.

Key Takeaways

Global Premium: The World index produced annualized premiums of 4.5% over bills and 3.8% over bonds across 111 years.
Dividends Matter: Reinvesting dividends turned $1 into 851 times its purchasing power, versus only 8.5 times without reinvestment.
Lower Expectations: The estimated future geometric equity premium is 3% to 3.5%, below the historical World premium of 4.5%.
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