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Episode 259: Comprehensive Overview: Estimating Expected Returns
The Rational Reminder Podcast
How Confident Should Investors Be About Collecting a Positive Equity Risk Premium?
How confident should investors be that they're going to collect a positive equity risk premium? I work with a guy named Gene Fama, Gene and I have a paper on exactly this question. It turns out if I'm looking at a 20 year horizon, just about 8% of my 100,000 samples produce a negative equity premium. Almost your complete performance over some any reasonable short run period is going to be determined by the unexpected return. And even 20 years, 8% of the time you won't get a positive equity premium.
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