Equity Premium
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? These blog entries examine the equity risk premium as a return benchmark for equity investors.
The 2010 Equity Risk Premium from Practitioners June 3, 2010
…U.S. and Canadian financial analysts on average currently estimate that investors require an annual excess return from equities of 5.1%.
The 2010 Equity Risk Premium from Academia June 2, 2010
…U.S. finance and economics professors on average currently estimate that investors require an annual excess return from equities of 6%.
Trading Frictions Over the Long Run April 28, 2010
…trading frictions for large-capitalization U.S. stocks are much higher for most of the 20th century than they have been over the past 20 years. These frictions may be material in deriving exploitable trends or anomalies from long-run series.
Fear of Disasters? April 22, 2010
…evidence suggests that fear of disasters accounts for large fractions, perhaps most on average, of both the equity risk premium and the volatility risk premium.
The “Best” Equity Risk Premium March 17, 2010
…formal asset valuation models (extrapolations of historical return data) provide the most (least) predictive estimates of the future equity risk premium.
Equity Risk Premium Book Learning September 21, 2009
…while mid-single digits may be a reasonable rough estimate for the equity risk premium, there is not a generally accepted value for it or method of estimating it.
CFOs Project the Equity Risk Premium May 20, 2009
…a current survey of U.S. CFOs indicates a prospective U.S. equity risk premium that is on a three-year uptrend (to 4.74%, the highest in the series).
The 2008 Equity Risk Premium from Academia February 19, 2009
…finance and economics professors on average currently estimate that investors require an annual excess return from equities in the range 5% to 7%.
The Prospective “Academic” Equity Risk Premium January 21, 2008
…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 December 7, 2007
…perceptions move markets. Market beliefs, which may express mistaken forecasts, are at least as important to asset pricing as macroeconomic fundamentals.
Calibrating Ancient History June 28, 2007
…a dynamic and flexible model of long-term equity returns that accommodates structural breaks improves predictive power, at the cost of considerable complexity.
The Professor’s Forecast for the Indefinite Future… January 3, 2007
The more we study it, the smaller it gets? Or, the act of studying risk diminishes the fear of it?
Honing in on the Prospective U.S. Equity Risk Premium November 22, 2006
…investors expect annual equity returns of 3-4% over the risk-free rate in coming years.
An Equity Risk Premium Opus October 2, 2006
…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 July 5, 2006
…the author forecasts annual worldwide equity returns in the high single digits over the coming decade.
