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Article: Research Update: The equity premium: Different perspectives.
- Article from:
- epn: European Pensions & Investment News
- Article date:
- April 28, 2003
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After three years of global bear markets, the debate on the nature of the equity premium is no longer a mere academic discussion, as practitioners as much as academics wonder whether it is possible to rationalise the "most important, but elusive quantity in finance".
Broadly, there are three main ways of approaching the issue. One is to postulate that history is the best available guide to the future and, therefore, our best estimate of the ex ante equity premium can be grasped by calculating historical returns. The second is try to derive the equity premium in a theoretical fashion, as the size of the pay-off required by individuals to bear the risks is ...