One interpretation of a low dividend yield is that people became more optimistic about longrun economic growth and the growth of dividends Another explanation which is not inconsistent with the first is that people come to see equities as less risky so th

Either of these forces could account for a decline in the dividend yield during the 1990s. We will consider the risk premium issues in more detail shortly. But another explanation is that stock prices were just far ahead of their fundamental value by the end of the 1990s—for some reason, share prices had become higher than would be predicted by companies' earnings. In the light of the large falls in stock prices in 2001 and 2002, this now looks more likely.

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