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SUMMARY:The Disappearing Equity Risk Premium on the 1920s NYSE - Dr Ali Ka
 biri\, University of Buckingham
DTSTART:20130527T160000Z
DTEND:20130527T180000Z
UID:TALK42955@talks.cam.ac.uk
CONTACT:D'Maris Coffman
DESCRIPTION:The NYSE boom of the 1920s ended with the infamous crash of Oc
 tober 1929 and subsequent collapse in common stock prices from 1929-1932. 
 Most approaches have suggested an overvaluation of 100%\, usually dating f
 rom mid-1927 to September 1929.  \nExcessive speculation based on high rea
 l earnings growth rates from 1921-8\, amid a euphoric  “new age” for t
 he 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 r
 eturns to common stocks (Smith\, 1924).  The research identified a large p
 remium on common stocks held over the long term compared to corporate bond
 s. This\, in turn led to the formation of new investment vehicles that aim
 ed 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 ear
 ning substantial excess returns over bonds\, new ideas derived from the re
 search led to a change in stock valuations.\n\nThe paper reconstructs fund
 amental values of NYSE stocks from long run dividend growth and stock vola
 tility data\, and demonstrates why such a change in theoretical values was
  unjustified. Investors switched to valuing stocks according to a new theo
 ry\, which ignored compensation for stock return volatility\, which made u
 p the Equity Risk Premium (ERP).\n
LOCATION:Lucia Windsor Room\, Newnham College
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