AgPa #82: Equity Risk Premiums and Interest Rates (2/2)
Expected Stock Returns When Interest Rates Are Low (2022)
David Blitz
The Journal of Portfolio Management 48(7), URL/SSRN
The second AGNOSTIC Paper on equity risk premiums when interest rates are high(er). This one was actually published before the last one, so David Blitz deserves credit for the original idea. He also examines a longer and more comprehensive dataset that serves as a nice out-of-sample test. So I think it makes sense to conclude the posts on equity risk premiums and interest rates with this more comprehensive paper.
- Equity risk premiums were lower when interest rates are higher
- Controlling for other factors doesn’t change the negative relation
- EPS growth seems to explain the pattern