• How does the size of the common stock risk premium affect portfolio diversification? - Personal Investment Management > Inve...
  How does the size of the common stock risk premium affect portfolio diversification? - Personal Investment Management > Investment Asset Diversification Articles -- Reducing Your Portfolio Risk - Financial Articles, Diversification depends upon the expected equity premium and the correlation of price movements between individual stocks in the market. Depending on the size of the equity risk premium, non diversified individual investors could unwittingly give up their entire expected equity premium. This is an extraordinarily unproductive risk to take.
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• How stable have common stock equity market returns been over time - The Skilled Investor provides free personal financial in...
  Common stock equity market returns have varied widely in the past. The common stock equity risk premium has averaged about 4.1% from 1872 to 2000. The equity
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• To estimate the future common stock risk premium, how might individual investors extrapolate from the past? - Personal Inves...
  To estimate the future common stock risk premium, how might individual investors extrapolate from the past? - Personal Investment Management > Investment Returns and Securities Market Risk Premiums Articles - Financial Articles, The past is the only source of guidance on how securities markets might perform in the future. Investors face critical choices about which method to use when extrapolating from the past. A study by Professors Fama and French provides individual investors with important guidance on which scientific methods to use. With these methods, a real or non inflationary equity premium of between 3.8% and 4.8% could be a rationally derived estimate of the real forward equity premium.
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• What happens to the expected equity premium, when the common stock P/E ratio reverts toward historical norms? - Personal Inv...
  What happens to the expected equity premium, when the common stock P/E ratio reverts toward historical norms? - Personal Investment Management > Investment Returns and Securities Market Risk Premiums Articles - Financial Articles, U.S. equities prices have had a long term tendency to revert toward their average price to earnings ratio. In the 1980s and 1990s, the PE had increased substantially above the long term average. Much, but not all, of this reversion occurred in the first five years of the 21st century.
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