5 Experts speak – The ERP dilemma

Three academic researchers at London Business School (Elroy Dimson, Paul Marsh and Mike Staunton) have spent much time measuring the long-run equity risk premium across different countries.

The first edition of their book Triumph of the Optimists: 101 Years of Global Investment Returns appeared in 2002 and has since been updated and re-published.

In 2002, their estimates of the historical risk premium were lower than frequently quoted historical averages at that time. They argued for a lower ERP than quoted at the time in most finance textbooks. This was due, in part, to changes in market volatility during the period of research.

If you are interested in the empirical evidence gathered by academic researchers Elroy Dimson, Paul Marsh and Mike Staunton, find and read ‘Global evidence on the equity risk premium’ (Dimson, et al., 2003).