The premium on risk is less than you think
by John Authers - FT
Investors should expect an equity premium of 3-3.5 per cent from now on – less than half the popular estimates for the past 100 years.
How much of a premium do we expect for taking the risk of investing in equities rather than something safer, such as long-term government bonds? And can that premium possibly be as high in the future as the 7 per cent or so that business school texts assume, and that historical studies of the UK and the US have shown?
Some contend that it is misleading only to look at these two countries. So a new study by Elroy Dimson, Paul Marsh and Mike Staunton, finance professors at London Business School, makes a Herculean effort to overcome this, by looking at returns for 17 countries dating back to 1900. Click here for the full story.
