The Risk of Premiums

Abstract

Expected risk premiums are not guaranteed. In this article, the author tests the existence of excess returns in stocks over bonds and in bonds over bills in 20 different countries using more than a century of data. Using an innovative technique, the author demonstrates that premiums are significant in less than half of cases. Excess returns may therefore be a likely consequence of asset characteristics, but not a certain reward for the willingness to bear more risk.