Martin, Ian (2016) What is the expected return on the market? Financial Markets Group Discussion Papers (750). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
This paper presents a new lower bound on the equity premium in terms of a volatility index, SVIX, that can be calculated from index option prices. This bound, which relies only on very weak assumptions, implies that the equity premium is extremely volatile, and that it rose above 20% at the height of the crisis in 2008. More aggressively, I argue that the lower bound-whose time-series average is about 5%-is approximately tight and that the high equity premia available at times of stress largely reflect high expected returns over the very short run.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | https://www.fmg.ac.uk/ |
| Additional Information: | © 2016 The Author |
| Divisions: | Finance |
| Subjects: | H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance |
| JEL classification: | E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy G - Financial Economics > G1 - General Financial Markets > G10 - General |
| Date Deposited: | 08 Jun 2023 13:27 |
| Last Modified: | 16 Sep 2023 00:01 |
| URI: | http://eprints.lse.ac.uk/id/eprint/119013 |
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