As many of you already know, we have been working hard to figure out the best way to model expected stock returns for financial planning and asset allocation. It has a lot of history in financial literature, which is to be expected, given the importance of the figure. In today’s episode, we’re looking all the way back to 1985, when Rajnish Mehra and Edward C.Prescott called the equity premium a puzzle, through to the present day, when the equity risk premium has only gotten larger. We dive into some of the theories for resolving the equity premium puzzle, explain why US stock market data isn’t the best way to estimate future premiums, thanks to its survivorship bias, and some of the general issues with interpreting past returns. Benjamin also gets into predictability, which is not as obvious as it seems, and highlights some of the information from the simulation he performed, and the big breakthroughs from running the numbers. All this and more in today’s episode on expected stock returns, so make sure to tune in today! Links From Today’s Episode: Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Episode 145 with Jen Risher — https://rationalreminder.ca/podcast/145 'Could Index Funds be ‘Worse Than Marxism’?’ — https://www.theatlantic.com/ideas/archive/2021/04/the-autopilot-economy/618497/ Episode 133 with Adriana Robertson — https://rationalreminder.ca/podcast/133 ‘The Equity Premium: A Puzzle’ — https://www.sciencedirect.com/science/article/abs/pii/0304393285900613 ‘Where is the Market Going?’ — https://www.johnhcochrane.com/research-all/where-is-the-market-going-uncertain-facts-and-novel-theories ‘The Worldwide Equity Premium: A Smaller Puzzle’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=891620 ‘The Long Run is Lying to You’ — https://www.aqr.com/Insights/Perspectives/The-Long-Run-Is-Lying-to-You ‘A Comprehensive Look at The Empirical Performance of Equity Premium Prediction’ — http://www.hec.unil.ch/agoyal/docs/Predictability_RFS.pdf ‘Long Horizon Predictability: A Cautionary Tale’ — https://www.aqr.com/Insights/Research/Working-Paper/Long-Horizon-Predictability-A-Cautionary-Tale ‘Investing in private credit: Bond-like stability, equity-like returns’ — https://invested.mdm.ca/md-blogs/md-platinum-global-private-credit-pool