The long-run performance of the New Zealand stock markets: 1899-2013

The aim of this paper is to construct a historical index for the New Zealand stock markets going back to 1899. From these historical returns, the authors can extract the average capital gains and dividend yield. It also allows them to provide an estimate for the equity risk premium (ERP).

The authors collect stock-level data (prices, dividends, etc.) from quote records that are kept at the National Library in Wellington. From the stock-level data, the authors compute a value-weighted market index over the period 1899-2013.

Over the period 1899-2013, the arithmetic mean of equity returns is 10.82 per cent p.a., with a standard deviation of 20.09 per cent. The New Zealand equity market had 92 years of positive returns and 23 years of negative returns during the sample period. The 10-year government bond yield, over the entire period, has an arithmetic mean return of 5.75 per cent. The ERP, on average, is 5.07 per cent.

The authors collect the longest available historical data series for the New Zealand equity market. They document statistical properties as well as the long-term ERP over the entire sample period of 115 years and several subperiods. The ERP is a key input in corporate/project valuation.