Ivo Welch, Brown Economics
December 2007

Ended

I have already written up the results now. Any answers now henceforth may or may not make a contribution to the consensus I will describe.

Short Academic Equity Premium Survey

Your answers to this short survey will be used to update my Journal of Business equity premium survey from 1998 (and its follow-up from 2001). Your answers will be held strictly confidential. If you have difficulties filling out this survey, please send an email to Ivo Welch.

Background Information: For the prevailing yield curve, click here. For the prevailing S&P500, click here.

Personal Information
My email address is:
I am a finance or economics professor: Yes. No. Soon.
Relative to other financial economists, I would guess that I have thought about the equity premium
I participated in Ivo Welch's previous equity premium survey in 1998/1999: Yes. No.
I participated in Ivo Welch's update for the equity premium survey in 2001: Yes. No.
If you read either my original JB survey paper or its update, did it influence you to lower or raise your estimate?

 

Relative to my views 6 years ago, my views about the stock market's long-term performance are today:

Parametric Equity Premium Estimates
I expect the average equity premium over the next 1 year to be
(define avg equity premium as the expected return on the value-weighted US market net of short-term T-bills)		 percent per year.
I expect the average arithmetic equity premium over the next 30 years to be
(relative to future contemporaneous short-term (3 month) T-Bills*) 		percent per year.
I expect the average geometric* equity premium over the next 30 years to be
(relative to future contemporaneous short-term (3 month) T-Bills)		 percent per year.
G30-A.1: Same question: In your classes, what is the main number you are recommending for long-term CAPM purposes? percent per year.
G30-A.2: Same question: In your classes, if you give a reasonable range for CAPM use, what is it? to percent per year.
G30-B: Same question: What would you have answered to the main question (30 year geo equity premium forecast) 6 years ago, i.e., in 2001? percent per year.
I expect the average nominal geometric stock return (not equity premium!) over the next 30 years to be percent per year.
Non-Parametric and Probability Equity Premium Estimates
Please give me an over/under bet for the S&P500 for December 31, 2008:
your level estimate should result in a risk-neutral, fair bet for either side (i.e., not adjusted for hedging/risk premia)
What is the probability that the stock market will go down over the next 12 months?
think of the market here as the Vanguard S&P500 fund (level plus dividends) total rate of return, not the equity premium. 		percent probability
What is the probability that the stock market will decline (lose money) over the next 12 months by 20% or more? percent probability
What is the probability that the stock market will decline (lose money) over the next 10 years? percent probability

Off-hand question: How should non-financial corporations do project capital budgeting? Pick most applicable.
(continued:) Is this what you tell your students?

Were the questions in this survey clear?

Do you want me to email you with the results when I have them?



* Note that different people use different equity premium definitions. I am asking it relative to short-term (3 month) Treasuries, not relative to long-term Treasuries. If you are used to quoting an equity premium relative to long-term Treasuries, you should add a term-spread estimate. Also, the geometric equity premium is "casual" usage. Think of it as compounded equity return minus compounded risk-free.