The estimation of expected security returns is one of the major tasks for the practical implementation of the Markowitz portfolio optimization. Against this background, in 1992 Black and Litterman developed an approach based on (theoretically established) expected equili-brium returns which...

A simple general equilibrium production economy matches moments of the value premium and equity premium. Value firms have low productivity, but will eventually produce high cash flows. The present value of these temporally distant cash flows is especially sensitive to equity premium movements....