In today’s screencast we take on the topic of the equity risk premium. There has a great deal of chatter of late about the demise of the equity risk premium (ERP). Given recent historical equity market performance this is not altogether surprising. Some go so far as to say that there is (and never was) an ERP. On the bright side, historically after a period of low equity returns the market has demonstrated substantially better returns in the future.
The implications of a greatly diminished (or zero) ERP have a myriad of implications for investment policies of both individuals and institutions. In short, has something about the equity markets fundamentally changed, or are we simply seeing increasingly gloomy talk in the face of a period of historically poor returns? Unfortunately only time will tell us the answer to that question.
Posts mentioned in the above screencast:
Just how long is the long run these days? (Felix Salmon)
Mohamed El-Erian on “violent market moves.” (FT Alphaville)
The equity risk premium as the “great stock market myth.” (The Atlantic)
Blind men and the equity risk premium. (Abnormal Returns)