Another big update for me is that according to modern EMH, big stock market movements mostly reflect changes in risk premium, rather than changes in predicted future cash flows. (The recent COVID-19 crash however was perhaps driven even more by liquidity needs.)
Important thing to note here: the Fama and French crowd tend to call a lot of things “risk premiums” which may or may not reflect any actual taste for risk; they’re just outputs of a factor model. That doesn’t mean that they’re meaningless, but calling it a “risk premium” is often rather misleading. I wouldn’t be the least bit surprised if one of their time-dependent “risk premiums” were actually just a factor corresponding to liquidity needs.
Another big update for me is that according to modern EMH, big stock market movements mostly reflect changes in risk premium, rather than changes in predicted future cash flows. (The recent COVID-19 crash however was perhaps driven even more by liquidity needs.)
Important thing to note here: the Fama and French crowd tend to call a lot of things “risk premiums” which may or may not reflect any actual taste for risk; they’re just outputs of a factor model. That doesn’t mean that they’re meaningless, but calling it a “risk premium” is often rather misleading. I wouldn’t be the least bit surprised if one of their time-dependent “risk premiums” were actually just a factor corresponding to liquidity needs.