PT  - JOURNAL ARTICLE
AU  - Jeremy J. Siegel
TI  - The Shrinking Equity Premium
AID  - 10.3905/jpm.1999.319776
DP  - 1999 Oct 31
TA  - The Journal of Portfolio Management
PG  - 10--17
VI  - 26
IP  - 1
4099  - https://pm-research.com/content/26/1/10.short
4100  - https://pm-research.com/content/26/1/10.full
AB  - The author argues that the equity premium or the historical spread between expected equity returns and government bond yields is probably far below the approximately 6% figure estimated in much of the finance literature. This, the author contends, is due both to an underestimate of the expected real return on the risk-free asset and an overestimate of the realized returns on equities. Correction of these biases reduces the equity premium to 1% to 2% per year. Furthermore, given the current high level of equity prices relative to earnings and high yield on government price-indexed bonds, it is extremely unlikely that the future premium will exceed the 1% to 2% range without an unprecedented increase in earnings growth.