Objective research and reviews to aid investing decisions
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Governments are largely insulated from market forces. Companies are not. Investments in stocks therefore carry substantial risk in comparison with holdings of government bonds, notes or bills. The marketplace presumably rewards risk with extra return. How much of a return premium should investors in equities expect? Here is a listing of past blog entries that examine the equity risk premium as a return benchmark for equity investors:
The Prospective "Academic" Equity Risk Premium ...U.S. finance professors on average, as of the end of 2007, expect stocks to offer a 5% annual (geometric) risk premium over the next 30 years, a little below their expectation in 2001.
The Belief Component of Risk Premiums ...perceptions move markets. Market beliefs, which may express mistaken forecasts, are at least as important to asset pricing as macroeconomic fundamentals.
The Incredible Shrinking Equity Risk Premium? ...this series of CFO surveys yields a prospective equity risk premium that is fairly small and generally shrinking over time, but noticeably up (to 3.21%) in the most recent edition.
Honing in on the Prospective U.S. Equity Risk Premium ...investors expect annual equity returns of 3-4% over the risk-free rate in coming years.
An Equity Risk Premium Opus ...the author provides a comprehensive overview of equity risk premium concepts and values, stressing the mid-20th century break in key financial relationships.
Worldwide Equity Returns in the 21st Century ...the author forecasts annual worldwide equity returns in the high single digits over the coming decade.
The Worldwide Equity Risk Premium ...investors should expect an equity premium in mid-single digits across markets in all countries over the very long term.
Stock Returns in the Long Run ...a supply side analysis indicates that stocks will outperform long-term government bonds by an arithmetic average of 6% annually.
4% Solution: Equity Risk Premium Update: ...we can expect single-digit long-term returns from stocks.
The Best Benchmarkers, Ever! ...stocks have significantly outperformed less risky asset classes in the U.S. for over 200 years. Volatility comes with the outperformance.
Triumph of the Optimists: Chapter-by-Chapter Review ..."if you read one investment book, this should be it."
The (Not Too) Optimistic? ...don't think big for long-term stock market gains.
See also Blog Synthesis: Mutual Funds and Hedge Funds for past blog entries that relate to investing performance benchmarks for mutual funds and hedge funds.
In summary, the typical investor in stocks should expect to beat government bond returns by mid-single digits over the long run, with considerable volatility.
