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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?


To: Greg Jung who wrote (26633)9/6/1998 12:09:00 AM
From: Moominoid  Respond to of 94695
 
"What is equity premium?"

The difference between the risk free rate ie the rate on treasury bills and the long-run rate of return on stocks. If the latter is 11-12% then the equity premium is 5.5-6.5%.

One theory behind the boom was that the equity premium (ie how much extra return investors want to compensate for the risk in holding stocks) fell pushing up average P/Es if it now comes down it will contribute to the bust.

David