According to the manual, ERP is the excess return of equities over bonds, to compensate investors for the extra risks taken. If markets were efficient, then the ERP would be expected to fluctuate within a narrow range. Why is this the case? My thought are if the market is efficient, then asset prices fully reflect all available information. Then I don't know how to tie this with the fact that Wilkie model is inconsistent with weak EMH. Can anyone help?
when they say "fluctuate within a narrow range", does it imply that Return on Equities - Return on bonds = almost constant, which in turn either means: i) the return on equities and bonds dont change much ii) they both move together in the same way correct?
