@techreport{NBERw6207,
 title = "Where is the Market Going? Uncertain Facts and Novel Theories",
 author = "John H. Cochrane",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "6207",
 year = "1998",
 month = "February",
 URL = "http://www.nber.org/papers/w6207",
 abstract = {Will the stock market provide high returns in the future as it has in the past?  The average US stock return in the postwar period has been about 8% above treasury bill rates.  But that average is poorly measured: The standard confidence interval extends from 3% to 13%.  Furthermore, expected returns are low at times such as the present of high prices.  Therefore, the statistical evidence suggests a period of low average returns, followed by a slow reversion to a poorly measured long term average. I turn to a detailed survey of economic theory, to see if models that summarize a vast amount of other information shed light on stock returns.  Standard models predict nothing like the historical equity premium.  After a decade of effort, a range of drastic modifications to the standard model can account for the historical equity premium.  It remains to be seen whether the drastic modifications and a high equity premium, or the standard model and a low equity premium, will triumph in the end. Therefore, economic theory gives one reason to fear that average excess returns will not return to 8% after the period of low returns signaled by today's high prices. I conclude with a warning that low average returns does not imply one should change one's portfolio.  Someone has to hold the market portfolio; one should only deviate from that norm if one is different from everyone else.},
}