tag:blogger.com,1999:blog-7905515.post6845887010433366106..comments2019-09-16T05:05:58.066-05:00Comments on Falkenblog: Equity Premium Survey Doesn't Register My VoteEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-7905515.post-31570072373690092532011-06-13T08:19:04.789-05:002011-06-13T08:19:04.789-05:00experts do not sees a risk premium below 2%
a car...experts do not sees a risk premium below 2%<br /><br />a carpe type sees?jon e whitefordhttp://jon.e.whiteford@gmail.comnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-20085675074111725972011-06-07T18:30:02.220-05:002011-06-07T18:30:02.220-05:00A lot can change in 30 years.
My understanding is ...A lot can change in 30 years.<br />My understanding is that the 3 month T-Bill can be stated as risk free as it carries almost zero default risk.Jay Zeehttps://www.blogger.com/profile/13839195907307103719noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-1104617297986751092011-06-07T05:27:53.972-05:002011-06-07T05:27:53.972-05:00anon: first day pops on IPOs aren't something ...anon: first day pops on IPOs aren't something you can just buy, you have to have accumulated favors with your broker or be in a position to help someone (eg, Congressman). So, the one-day 12% IPO pop is not an 'equilibrium' result, just a way for insiders to make barter payments (ie, tax free). The return subsequent to the one-day pop, is an equilibrium result, and it's well below benchmark returns, even though it's pretty risky.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-85839888753823629572011-06-07T03:54:03.487-05:002011-06-07T03:54:03.487-05:00So the overnight or 90 day rate.So the overnight or 90 day rate.mOOmhttps://www.blogger.com/profile/03440274434662150925noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-66316840189359404332011-06-07T03:52:36.224-05:002011-06-07T03:52:36.224-05:00It's the premium over the risk free rate. So 0...It's the premium over the risk free rate. So 0% isn't means that it is lower than long-term treasuries.mOOmhttps://www.blogger.com/profile/03440274434662150925noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-33954796450489308252011-06-07T00:25:03.745-05:002011-06-07T00:25:03.745-05:00Excuse me but I'm almost sure that there's...Excuse me but I'm almost sure that there's research out there showing that IPOs do have an excess return and it's pretty high, although after the first day pop they go back to average. In other words, there's alpha to be gained from buying into IPOs and selling on the first day of trading.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-66047221190763316742011-06-06T23:46:59.714-05:002011-06-06T23:46:59.714-05:00I think we need to clarify exactly what we mean by...I think we need to clarify exactly what we mean by the risk premium. <br /><br />I interpret it as the difference in the long run geometric return of equities over 30-year Treasury yields. Since I think large cap stocks will earn 7.6% and assuming today's 30-year Treasury yield of 4.26% is fair-valued, I'd say the risk premium is about 3.3%. But in the longer run, I expect 30-year treasuries to be around 4.8%, so I could see the premium being as low as 2.8%.<br /><br />However, I notice in the comments that some people are using 3-month and even 1-year government bonds. Additionally, it isn't clear to me that some respondents aren't using arithmetic numbers, which bring about another issue--what is the standard deviation. A high arithmetic return with a very high standard deviation produces a very low geometric return. <br /><br />Another thing: is it the premium over the yield or the return of long treasuries? (And some countries don't issue 30-year bonds, so maybe I should rescale the premium to the 10-year Treasury.)<br /><br />Finally, it looks like some of the commentators are looking at cost-of-capital for specific firms. I believe this should be arithmetic return, but I could be wrong. The geometric return of a single stock is quite different from the geometric return of a market index fund like the S&P 500, but the arithmetic return could be the same.<br /><br />Fernandez needs to clarify the precise definition of the MRP and the application of it. Because of the confusion, I find his surveys to be uninformative.Anonymousnoreply@blogger.com