The Motley Fool Discussion Boards
Social Clubs / Deranged Monkey Criticism
|Subject: is the masrket overpriced||Date: 5/14/2013 1:04 PM|
|Author: mauser96||Number: 17114 of 22968|
a multifactor model of equity risk premium, which they say is at an all time high
Why is the equity premium so high right now? And why is it high at all horizons? There are two possible reasons: low discount rates (that is, low Treasury yields) and/or high current or future expected dividends
We can figure out which factor is more important by comparing the twenty-nine models with one another. This strategy works because some models emphasize changes in dividends, while others emphasize changes in risk-free rates. We find that the equity risk premium is high mainly due to exceptionally low Treasury yields at all foreseeable horizons. In contrast, the current level of dividends is roughly at its historical average and future dividends are expected to grow only modestly above average in the coming years.
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|