ERP

CFA Level II Equities
#1

Ch. 31 Q # 8:

Does anyone understand why the answer is not A? I would think that since the 2004-2006 era disturbed the financial markets, investors would require a great premium to compensate for the risk, thus an upward bias on the historical ERP.

any thoughts?

Thanks!

#2

If I recall correctly, historical ERP looks not at expectations but actual returns - which were really bad during those years and hence ERP was negative (at least for part of it)