The Great Divergence: French Equity Premium is Lower and Riskier than the US since WWI

In this paper, we compare the US and French risk premium computed on high quality data. We confirm that the US risk premium has been constantly higher. We also show that the US equity outperformance is even higher when we compute the price of risk. Indeed, the US equity risk has been lower than the French one since 1917. The two world wars do not seem to explain the risk premium difference, as the US continues to outperform the French equity market after 1950. We conclude that the particular case of the outperformance of the US equity cannot be directly extrapolated to other equity markets.