This paper brings together leading academics and practitioners to reconsider how investors should think about the equity risk premium. Revisiting a discussion first held in 2001, the authors explore historical evidence, forward looking estimates, and competing frameworks for determining what investors might reasonably expect from equities.
Rethinking the Equity Risk Premium
Martin Leibowitz, rett Hammond
Research
164 Pages
Key Takeaways
Long Run Premium: U.S. equities delivered roughly a 6% annualized real premium over Treasury bills across much of the 20th century, unusually strong by global standards.
Global Evidence Matters: Historical data spanning 19 countries since 1900 suggests equity premium assumptions should reflect broader international experience rather than relying solely on U.S. returns.
Expectations Have Fallen: Several contributors place prospective equity premiums around 3% to 4%, below the higher premiums investors observed across much of U.S. market history.
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