A common refrain is that to get more return you have to bear more risk. But what exactly is risk? We revisit this important issue. As part of the work leading to his Noble Prize, William Sharpe noted that in equilibrium all investors should hold some combination of the risk-free asset and the market portfolio.
Economic Insights
CORNELL CAPITAL GROUP
Download PDF With stock prices at near record highs relative to measures like earnings or cash flow, many leading analysts have predicted meager returns over the next decade. Some have even suggested the return on the S&P 500 could be negative over the upcoming decade. Others have raised the possibility of a short-term collapse of
The S&P 500 ended the year 2023 at 4,769. During December, several leading financial firms were asked for their forecasts for the year-end 2024. The results are shown below. The most optimistic forecasts were by Fundstrat (a well-known bullish firm), Oppenheimer, and Yardeni. Considering the strong returns during 2023, four major firms, including Morgan Stanley
Professor and Nobel Prize winner Eugene Fama put forth the efficient market hypothesis and based on that concept Warren Buffet suggested that holding a passive investment in the S&P 500 was the best advice for most investors. If the market were efficient and if passive investing was best for everyone, how can that be reconciled
The decade ending in 2023 was a great one for common stocks. Is the next decade likely to be as good? We provide an analysis using Damodaran’s equity risk premium (ERP) and a framework developed by Jordan Brooks of AQR. Hello and welcome back to ‘Reflections on Investing’ with the Cornell Capital Group. This is
A market crash is nothing more than a low risk premium meeting risk aversion. —– John P. Hussman, Ph.D., November 8, 2021, When Bubble Meets Trouble Risk Premiums and Stock Prices In our third quarter memo, we stressed the importance of the equity risk premium (ERP) for understanding the level of stock prices and their relation to expected future
Real Interest Rates have an immense impact on the stock market as well as the bond market. Nonetheless, they are widely misunderstood. Hello and welcome back to Reflections on Investing with the Cornell Capital Group. And today we’re going to talk about the real interest rate. I use the word “the real interest rate” as
Would you believe, that long-term US Treasury securities, historically considered one of the safest investments, have now dropped more than the stock market did during the great recession of 2008? What are the implications for fixed income investments going forward? Hello and welcome back to Reflections on Investing with the Cornell Capital Group. It’s been
Discount rate variation (equivalently expected returns, risk premiums) is now at the center of asset pricing questions, from bubbles to the nature of the crash.—– John Cochrane, Presidential address to the American Finance Association.As John Cochrane notes, it is hard to understand stock price movements and related risks without taking account of variation in discount
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