Just a quick one.
Have been thinking recently about risk premium and the return on the ASX200 vs the aussie 10 year bond. As mentioned in this thread I think it's an interesting time moving forward.
What I'm trying to derive is a quick measure of risk premium. I know a fairly 'standard' one is dividend yield vs 10 year yield but to me that's not ideal.
Link below shows the historical relationship and it's not very mean reverting.
Effectively dividend yield isn't a great measure because companies can retain profits/reinvest/etc so it doesn't paint the whole picture.
I'm thinking a better comparison is forecast ROE vs 10 year yield? Any other thoughts/suggestions?
Edit: perhaps I should just inverse the current p/e ratio and compare to the 10 year yield?
EDIT 2: Investopedia agrees http://www.investopedia.com/terms/e/earningsyield.asp