What the hell is Ibbotson-Chen?

effect of reading only schweser!!!
Chapter on Return Concepts:
Equity Risk Premium = [(1+EGREPS)(1+EINFL)(1+EGPE ) -EInc] - LTBYield(Expected risk free return)
EGREPS = Expected growth rate in EPS
EINFL = Expected long term forecast of Inflation
EGPE=Expected growth rate in P/E [defaults to 0, usually)
EINC=Dividend yield or growth of income portion.
 
Macro based multifactor model for calculating equity risk premium. Also called supply side rate of return
ERP=[(1+Infl)(1+Growth PE)(1+Growth EPS)-1+Increase in Earnings]-RFR
 
I think, but not positive, Ibbot Chen provides the equity risk premium. I think this is also called the “macro economic model” , something like compute the equity risk premium with the macro economic model
sweet formula:
[(1+expected inflation)(1+expected growth in GDP)(1+expected growth in P/E)] -1 + expected return of the market - risk free rate
 
can someone please confirm that ibbot chen is also called the “supply side rate of return”
 
Thanks folks.
God, I hate Schweser. Last time, I swear….
 
oops supply side Estimate of Equity risk premium..not rate of return as i wrote earlier..apologies..
cf: cfai equity p150
 
ranjan.rao Wrote:
——————————————————-
> oops supply side Estimate of Equity risk
> premium..not rate of return as i wrote
> earlier..apologies..
> cf: cfai equity p150
Yes, Ibbotson Chen is also referred to as the supply-side estimate of the equity risk premium. CFA state “To illustrate a supply-side analysis, the total return to equity can be analyzed into four components as explained by Ibbotson and Chen” on page 120 of volume 4.
Cheers
 
Ibbotsen Chen is specifically mentioned in an LOS. No idea how Schweser missed this.
 
Just checked. It is in schweser. The show NY is right, p44. But it’s not referred to as the Ibottson Chen model, but the supply side rate of return.
 
soddy1979 Wrote:
——————————————————-
> Ibbotsen Chen is specifically mentioned in an LOS.
> No idea how Schweser missed this.
Which LOS? I just checked the Finquiz site and didn’t see anything.
 
So is there or is there not an actual LOS # associated with Ibbotsen Chen?
 
doesn’t mention it by name…
but los 35.c: discuss strengths and weaknesses of methods used to determine equity risk premium
is present.
 
cpk123 Wrote:
——————————————————-
> doesn’t mention it by name…
>
> but los 35.c: discuss strengths and weaknesses of
> methods used to determine equity risk premium
>
> is present.
If that’s the case, then I don’t think learning the formula is relevant to the exam. Just know what it is, how it works and move on.
 
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