ACTV - Did Inflation Kill The CAPM?
2024-06-25 14:40:00 ET
Summary
- High inflation and expensive equities lead to a negative risk-return relationship and shrink the equity premium to zero.
- Given today’s market dynamics, investors should avoid high-volatility stocks or hope for a different outcome than the historical reality illustrated in this blog post.
- With the excess CAPE yield below 3% and inflation above 3%, expected returns are low.
High inflation and expensive equities lead to a negative risk-return relationship and shrink the equity premium to zero. In years following this "everything expensive" scenario, low-volatility, quality, value, and momentum factors yield sizeable positive premiums....
Did Inflation Kill The CAPM?