Game-changing study reveals equity premium and CAPM implications for investment managers.
The article discusses how to estimate the equity premium using a mathematical model called the Capital Asset Pricing Model (CAPM). The researchers found that the equity premium over a specific period was 6.36%. This model relies on different assumptions than the traditional CAPM, which may not reflect real-world market conditions accurately. The study suggests that the CAPM can be improved by considering game theory and martingales.