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February 24, 2024The Journal of Portfolio Management

Honey, the Fed Shrunk the Equity Premium: Asset Allocation in a Higher-Rate World

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TMThomas Maloney

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Overview

Empirical analysis reveals slimmer equity excess returns for stocks during elevated interest rates, highlighting the value of portfolio diversification into liquid alternative strategies.

Key Points

  • Equity markets have earned slimmer excess returns on average during higher interest rate periods, effectively compressing the traditional equity premium.
  • Empirical analysis comparing multi-asset historical patterns with early 2024 yield-based expected returns indicates persistent shifts in asset allocation.
  • Highlights that broad diversification into cash-plus liquid alternative strategies provides crucial balance when baseline interest rates remain elevated.

Cite This Study

Thomas Maloney (2024) studied this question.

synapsesocial.com/papers/68e77c7cb6db6435876f06f5https://doi.org/10.3905/jpm.2024.1.601
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