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Economic Commentary

Investor Expectations and Fundamentals: Disappointment Ahead?

The average annual return of the S&P 500 index since 1994 has exceeded 25 percent. Confidence is high and investors are looking forward to continued above-average returns. In this Economic Commentary, we attempt to reconcile investors’ expectations with a decline in the equity premium, using a standard approach to stock-price valuation.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit for updates.

Suggested Citation

Carlson, John B., and Eduard Pelz. 2000. “Investor Expectations and Fundamentals: Disappointment Ahead?” Federal Reserve Bank of Cleveland, Economic Commentary 5/1/2000.