BUSI 4502 Lecture Notes - Lecture 4: United States Treasury Security, Dividend Yield, Risk Premium
30 Aug 2018
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Document Summary
Article 11 estimating the stock/ bond risk premium. This article discuss regarding the risk premium of stock over u. s. treasury bonds. Prior research states that there are more advantages of stocks over bonds. However, a study by arnott and bernstein states the other way, where bonds are actually better than stocks. Hence, this study is to determine which theory is actually accurate. The sample period is between 1871 and 2001. Nominal values are used to allow investors to make judgement regarding the stocks compared to bonds using their knowledge. The study begins by comparing return of stocks against bonds. Stock returned of 9. 3% exceeds bond return of 5% is lower than most calculations during the period. It is then followed with scenarios under which bonds or stocks outperform. The best ten years for stick as from 1949 to 1959, with risk premium of 19. 4%. As for treasury bonds, it is from 1928 to 1938 with -5. 5%.
