Just a quick one.
Have been thinking recently about risk premium and the return on the ASX200 vs the aussie 10 year bond. As mentioned in this thread I think it's an interesting time moving forward.
What I'm trying to derive is a quick measure of risk premium. I know a fairly 'standard' one is dividend yield vs 10 year yield but to me that's not ideal.
Link below shows the historical relationship and it's not very mean reverting.
http://ift.tt/1IaqgLr
Effectively dividend yield isn't a great measure because companies can retain profits/reinvest/etc so it doesn't paint the whole picture.
I'm thinking a better comparison is forecast ROE vs 10 year yield? Any other thoughts/suggestions?
Edit: perhaps I should just inverse the current p/e ratio and compare to the 10 year yield?
EDIT 2: Investopedia agrees http://ift.tt/1qgNZEg
Have been thinking recently about risk premium and the return on the ASX200 vs the aussie 10 year bond. As mentioned in this thread I think it's an interesting time moving forward.
What I'm trying to derive is a quick measure of risk premium. I know a fairly 'standard' one is dividend yield vs 10 year yield but to me that's not ideal.
Link below shows the historical relationship and it's not very mean reverting.
http://ift.tt/1IaqgLr
Effectively dividend yield isn't a great measure because companies can retain profits/reinvest/etc so it doesn't paint the whole picture.
I'm thinking a better comparison is forecast ROE vs 10 year yield? Any other thoughts/suggestions?
Edit: perhaps I should just inverse the current p/e ratio and compare to the 10 year yield?
EDIT 2: Investopedia agrees http://ift.tt/1qgNZEg
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