The EIU’s finance team has received the latest Credit Suisse Global Investment Returns Sourcebook. A hard-copy only publication, it is a weighty tome in terms of both content and physical heft. The research, conducted by a group of academics from the London Business School who wrote an influential book on investment returns, crunches the numbers on asset returns for 19 countries back to 1900. This makes it an authority on the global equity risk premium.

Over the past 111 years, the annual global equity risk premium was 4.5% relative to treasury bills, the research shows. Dividends account for the bulk of the premium, with the overall valuation of shares—as measured by the price/dividend ratio—adding only 0.5% per year. This re-rating of shares is “quite modest”, the report argues, “given the improved opportunities for stock market diversification that took place over this period”.

Was a 4.5% premium what investors expected in advance? To some extent, past equity performance relied on “past good fortune and factors that are unlikely to recur”, the research asserts. Take, for example, the fact that the world dividend yield in 2010, 2.5%, is well below the 4.1% average seen over the past 111 years. This, combined with a more modest outlook for the re-rating of shares and other factors, leads the researchers to infer that investors now expect an annualised long-term equity risk premium, relative to bills, of between 3% and 3.5%.