When the Equity Premium Was New

Date:

Share post:


In 1924, Edgar Lawrence Smith published an empirical study showing that an equity premium had been consistently realized in history. The now-familiar idea that stocks will outperform bonds over the long run was at that time a startling rejection of conventional wisdom. Smith’s contemporaries expected bonds to have outperformed under the deflationary conditions that prevailed in the later 19th century. Using recently compiled data, I revisit the question of whether history shows an unconditioned equity premium. US and UK data show the historical equity premium to be contingent on the absence of deflation. US and Japan data show that disinflation has effects similar to deflation. The paper concludes by developing the implications of accepting a contingent equity premium.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Related articles

Private Markets: Five Questions Every Portfolio Manager Should Ask

This Q&A is gleaned from articles published in Enterprising Investor on this subject within the past 100...

Building a Winning Organization

An HBR Executive Live conversation with David M. Rubenstein. by Adi IgnatiusOctober 28, 2026In professional sports, as...

Great News for Tesla Stock Investors as a Merger with SpaceX is More Likely

Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool has positions...

Mortgage and real estate mergers and acquisitions in 2026

Key Insight: Find out how mortgage rivals are quietly scooping up market share, artificial intelligence power and...