Why you’re mis-estimating the Equity Risk Premium #2

You’ve used too short a period

Your ERP estimate can be way too high or way too low.  The standard errors of estimates of the ERP are typically huge since the variability in equity returns is so high. To get a solid estimate within a narrow confidence interval requires many decades of data.

It’s true that the ERP itself may change over time, but estimates of very short periods are not reliable.

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