Overall Rate of Return over the long (infinite) term based on MC/random walk/binomial models.
It was quite a dissapointing result when I learned it.
It was quite a dissapointing result when I learned it.
Anyway models of low risk investments will underestimate long term crashes /Black swan.
Also, are you comparing other assets directly or somehow including combinations of them? Can you point me to a specific theorem you seem to be referring to?
I wish i could find the actual theorem, but it's been a few years since I took the course and have long lost the textbook[1]. It was pretty clear though when it was taught, or at least that's what I gleaned out of that lesson without the teacher having to say it.
[1] https://en.wikipedia.org/wiki/Capital_asset_pricing_model
E(R_m)-R_f is sometimes known as the market premium (the difference between the expected market rate of return and the risk-free rate of return).
The risk free rate of return is reduced because people want to leverage short term cash flows. A 99% chance of gaining 5% is not necessarily worth a 1% chance of losing 5%. EX: Collage tuition is paid before teachers salary's are paid, so collages want somewhere to stuff money for a weeks, but losing money is vastly worse than some minor gains.
If you model the stock market by say buying evenly from all stocks and selling in 50 years repeat. Then some outliers like dell at IPO going up 500x more than makes up for losses. But, you can still lose a lot of money over say 5 or even 20 years and people can't necessarily wait 50 years.