TIME-SERIES PROPERTIES OF THE EQUITY RISK PREMIUM

In this paper we use time-series models to investigate the presence of autoregression, random variation, and random walk movements of historic equity risk premiums. An autoregressive risk premium is found for 1926–58, but random variation around a much lower risk premium mean is found for 1959–90. This finding is not sensitive to holding-period length, the choice of the risk-free rate proxy, or January/July seasonal effects.