The Equity Premium And Investment Policy

Why are investors so concerned about the level of the equity premium The principal reason is very straightforward Practically every important decision that an investor makes is driven by the equity premium assumption. Decisions like the split between equity and bond holdings, the allocation to alternative investments, and the level and structure of active risk taking all depend on the equity premium assumption. Given the importance of this assumption, it is not terribly surprising that so much...

Bibliography

International Portfolio Choice and Corporation Finance A Synthesis. Journal of Finance 38 925-984. AIMR. 2002 (March 1). Update Report of the Leverage & Derivatives Subcommittee of the Investment Performance Council. Charlottesville, VA Association for Investment Management and Research. AIMR. 2002 (June 1). Update Report of the Leverage & Derivatives Subcommittee of the Investment Performance Council. Charlottesville, VA Association for Investment...

About the Authors

Andrew Alford, Vice President, heads the Global Quantitative Equity Research GQE team conducting research on fundamental-based quantitative investment strategies. He is also a member of the GQE Investment Policy Committee. Prior to joining GSAM, he was a professor at the Wharton School of Business at the University of Pennsylvania and the Sloan School of Management at the Massachusetts Institute of Technology. Alford has also served as an academic fellow in the Office of Economic Analysis at...