| Author: | Arnott, R. D. Bernstein, P. L. |
| Title: | What Risk Premium Is "Normal"? |
| Journal: | Financial Analysts' Journal
2002 : MAR-APR, VOL. 58:2, p. 64-85 |
| Index terms: | EVALUATION RISK RISK ANALYSIS RISK MEASUREMENT RETURN ON INVESTMENT |
| Language: | eng |
| Abstract: | The goal of this article is an estimate of the objective forward-looking U.S. equity risk premium relative to bonds through history-specifically, since 1802. For correct evaluation, such a complex topic requires several careful steps: To gauge the risk premium for stocks relative to bonds, the authors need an expected real stock return and an expected real bond return. To gauge the expected real bond return, the authors need both bond yields and an estimate of expected inflation through history. To gauge the expected real stock return, the authors need both stock dividend yields and an estimate of expected real dividend growth. Accordingly, the authors go through each of these steps. |
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