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).

« December 2018 »
December
MoTuWeThFrSaSu
12
3456789
10111213141516
17181920212223
24252627282930
31

RSS Feed Latest news

Winners of the Best Student Paper Award 2018 announced

Aug 21, 2018

Cambridge Finance is proud to announce the winners of the Best student Paper Award for 2017-2018

View all news

Upcoming events

Cambridge Finance Workshop - Jean-Edouard Colliard

Jan 24, 2019

Room W4.05, Cambridge Judge Business School

Cambridge Finance Workshop -Naomi R. Lamoreaux

Feb 07, 2019

W2.02, Cambridge Judge Business School

Previous events

Upcoming events