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Asset ManagementA Systematic Approach to Factor Investing$
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Andrew Ang

Print publication date: 2014

Print ISBN-13: 9780199959327

Published to Oxford Scholarship Online: August 2014

DOI: 10.1093/acprof:oso/9780199959327.001.0001

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Equities

Equities

Chapter:
(p.240) Chapter 8 Equities
Source:
Asset Management
Author(s):

Andrew Ang

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199959327.003.0008

Equities have historically exhibited high returns relative to bonds and cash (bills). The equity risk premium is a reward for bearing losses during bad times, which are defined by low consumption growth, disasters, or long-run risks. Equities are a surprisingly poor hedge against inflation. While theory suggests that equity risk premiums are predictable, predictability is hard to detect statistically. Equity volatility, however, is much more forecastable.

Keywords:   equity risk premium, time-varying risk aversion, habit, long-run risk, disaster risk, heterogeneous agents, inflation hedging, time-varying risk premium, predictability, volatility timing

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