Just focusing on future vol, in equations like stock allocation=ERP/((vol^2)*personal risk parameter), I believe there might be arguments to assume expected value is lower than past. One might be as you mention more effective control of inflation without the downsides of a precious metals money system (no way to fighter depressions, inflation can be caused by new discoveries of the metal, etc). Other arguments might be more general transparency, lower transactions costs, higher liquidity. Those things all imply 'smoother'. OTOH 1900-now has one basically consistent macro story: US gains and maintains world leadership in various important ways. The next few decades could basically continue that story or have a very different one. A very different one could be much more volatile. And while stocks are perpetuals (so current valuation expresses a long term expectation), it's harder to find market indicators of expected long term equity vol, options markets are enormous in short term but orders of magnitude smaller, and less transparent, in long term options.If you split that chart in 1934, you can see a difference in volatility before and after the end of the gold standard. That difference also seems to come with a more general trend toward decreasing real equity returns. It's also worth noting that the frequent appearance of deflation during the gold standard dramatically bumped real returns in several years -- even masking negative nominal returns.
Post-WWII, fixed income started yielding much more -- but with increased volatility. Once the Fed got active about inflation, the general trend there was also downward. The question in my mind is whether the norm of active participation by the Fed will lead to a new norm of lower real yields from both asset classes, combined with (or due to) much more inflation consistency.
Statistics: Posted by JackoC — Mon Aug 12, 2024 3:40 pm — Replies 3592 — Views 871815