RSM332H1 Chapter Notes - Chapter 8: Efficient Frontier, Harry Markowitz, Earnings Yield
Document Summary
Ex post returns are past or historical returns, while ex ante returns are future or expected returns. The income yield is the return earned by investors as a periodic cash flow. The capital gain (or loss) is the appreciation (depreciation) in the price of an asset from some starting price, usually the purchase price or the price at the start of a period. The total return is the capital gain yield plus the income yield. Equations 8-1, 8-2 and 8-3 can be summarized as: Figure 8-1 shows the earnings yield on the s&p/tsx composite index and the ytm on the long canada bond since 1986. Notice that usually yields on bonds exceed stocks, but this relationship actually reversed during the recent financial crisis. Table 8-1 indicates that the yield gap between common shares and long canada bonds varies over time depending on bond yields and the perceived riskiness of equity investments.
