tag:blogger.com,1999:blog-5154389358831836369.post7257809295064549757..comments2024-03-28T02:00:36.854-04:00Comments on The Slack Wire: Adventures in Cognitive DissonanceJW Masonhttp://www.blogger.com/profile/10664452827447313845noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-5154389358831836369.post-15556724721008828212012-05-28T17:33:20.914-04:002012-05-28T17:33:20.914-04:00K,
I wasn't criticizing the claim that there ...K,<br /><br />I wasn't criticizing the claim that there is an expected return of 9 percent on equities this year (tho in fact I don't believe it, at all), but rather the <i>combination</i> of believing that stock prices incorporate a strongly time-varying risk premium, and believing that stock prices give the best available estimate of the present value of a firm's future earnings. <br /><br />And of course I was also contrasting the confidence with which DeLong assumes finance is all about risk distribution now, compared with the doubts he was expecting last week. Obviously I like the May 22nd version better.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-40464096471744289462012-05-28T09:08:36.855-04:002012-05-28T09:08:36.855-04:00"Is there some way of consistently believing ..."Is there some way of consistently believing both that current stock values give an unbiased estimate of the present value of future earnings, and that stock values a year from now will be much higher than they are today?"<br /><br />To me, it looks like pretty standard capital asset pricing theory. Undiversifiable risk is supposed to generate an expected return over the risk-free rate, right? DeLong estimates the equity risk premium to be 9%. I have no idea how he comes up with that particular figure, but it doesn't strike me as nonsense.<br /><br />KAnonymousnoreply@blogger.com