I am struggeling to understand the effect of periods with depressed returns will have on Equity RIsk Premiums.
My thought process is that during bad times an investor demands a higher risk premium to be invested in equity. So I would have believed that if we include periods of depressed returns, the equity risk premium would be biased upwards?
The CFAI books tells me differently: [content removed by moderator]
How come the period from 2004-2006 with depressed returns bias the equity risk premium downwards? Where am I going wrong in my thought process? Thanks for the help, much appreciated.