The Equity Premium in India
In this article we examine the Equity Premium in the Indian context and review the related literature. The equity premium is the returned earned by a well-diversified stock portfolio in excess of that earned by a risk free security such as a Treasury Bill. Consistent with U.S. experience we find that the Indian equity premium has been quite high in the post 1991 period, averaging 9.7% above the corresponding risk free security. It is difficult to justify such a premium based on theoretical considerations.
The article is an entry prepared for the Oxford Companion to Economics in India edited by Kaushik Basu
Basu, Kaushik (ed.) Oxford Companion to Economics in India. Oxford University Press, 2007.