skip to primary navigationskip to content
 

Financial History Seminar Series - "The Disappearing Equity Risk Premium on the 1920s NYSE"

When May 27, 2013
from 05:00 PM to 07:00 PM
Where Lucia Windsor Room, Newnham College
Contact Name
Add event to calendar vCal
iCal

"The Disappearing Equity Risk Premium on the 1920s NYSE" by Dr Ali Kabiri, University of Buckingham

The NYSE boom of the 1920s ended with the infamous crash of October 1929 and subsequent collapse in common stock prices from 1929-1932. Most approaches have suggested an overvaluation of 100%, usually dating from mid-1927 to September 1929. Excessive speculation based on high real earnings growth rates from 1921-8, amid a euphoric "new age" for the US economy, has been given as the cause. However, the 1920s witnessed the emergence of new ideas emanating from new research on the long-term returns to common stocks (Smith, 1924). The research identified a large premium on common stocks held over the long term compared to corporate bonds. This, in turn led to the formation of new investment vehicles that aimed to hold diversified stock portfolios over the long run in order to earn the large equity risk premium. Whilst such an approach was capable of earning substantial excess returns over bonds, new ideas derived from the research led to a change in stock valuations. This paper reconstructs fundamental values of NYSE stocks from long run dividend growth and stock volatility data, and demonstrates why such a change in theoretical values was unjustified. Investors switched to valuing stocks according to a new theory, which ignored compensation for stock return volatility, which made up the Equity Risk Premium (ERP).

« January 2017 »
January
MoTuWeThFrSaSu
1
2345678
9101112131415
16171819202122
23242526272829
3031

RSS Feed Latest news

CERF PhD Scholarship competition 2017 - now open

Nov 08, 2016

For the fifth year, Cambridge Endowment for Research in Finance is offering a scholarship scheme.

View all news

Upcoming events

Cambridge Finance Workshop - Bart Lambrecht

Jan 26, 2017

Room W4.03, Cambridge Judge Business School

Cambridge Finance Workshop - Agostino Capponi

Feb 23, 2017

Room W4.03, Cambridge Judge Business School

Previous events

Upcoming events