Research Roundtable

The Equity Premium

By: IVO WELCH

Yale School of Management
Yale University
Email Ivo.welch@yale.edu
Postal: Yale University
Yale School of Management
46 Hillhouse Ave.
New Haven, CT 06520
Phone: (203) 436-0777
Fax: (203) 436-0779

Organized by PETER TUFANO

Harvard Business School
Harvard University

Discussants
PETER BOSSAERTS, California Institute of Technology
JOHN COCHRANE, University of Chicago, Graduate School of Business
GENE FAMA, University of Chicago, Graduate School of Business
WILL GOETZMANN, Yale University, School of Management
ROBERT S. HARRIS, Darden Graduate School of Business, University of Virginia
JOHN HEATON, Northwestern University, Kellogg Graduate School of Management
ROGER IBBOTSON, Yale University, School of Management
MICHAEL J. MAUBOUSSIN, Chief U.S. Investment Strategist - Credit Suisse First Boston and
Adjunct Professor - Finance and Economics -Columbia Business School
ANDRE F. PEROLD, Harvard University, Harvard Business School
JAY RITTER, University of Florida, Warrington College of Business
ROBERT WHITELAW, New York University, Stern School of Business

Discussion board available at: http://ssrn.com/forum/

Document: Available from SSRN Electronic Paper Collection:

http://papers.ssrn.com/paper.taf?abstract_id=234713

Date: June 30, 2000

I. A BRIEF INTRODUCTION TO THE EQUITY PREMIUM

II. SELECTED BIBLIOGRAPHY
III. COMMENTS BY DISCUSSANTS
IV. BULLETIN BOARD FOR DISCUSSION OF THE EQUITY PREMIUM
I. A BRIEF INTRODUCTION TO THE EQUITY PREMIUM

Loosely speaking, the equity premium is the difference between the return on risky stocks and
return on safe bonds. It is the prime input both in the CAPM (the model used by most
practitioners in computing an appropriate hurdle rate), and in asset allocation decisions (the
choice of whether an investor should hold stocks or bonds).

Unfortunately, there is no universally accepted definition of the equity premium. In particular, one
can compute equity premia using different stock market indices, different bonds (either long-term
or short-term), different methods of compounding or cumulating returns over time, and different
historical time periods. Such computational differences can lead to valid historical equity
premium quotations ranging from 4.3% per year up to about 9.4% per year, depending also on
the time period quoted (e.g., Welch [2000]). It is important for a user of equity premium estimates
to be clear about which definition is used and why it is the appropriate definition for the particular
purpose it is used for.

There are three inter-related questions of primary interest to researchers:

[1] Why has the historical equity premium been so high?

[2] What is a good forward-looking prediction for the equity premium for the long run?

[3] Can one use other variables, such as dividend yields, to come up with a good forecast of the
equity premium, at least over a 1-5 year period?

As first pointed out by Mehra and Prescott [1985], a return differential of, say, 8% per year is
enormous especially over a long enough horizon. Ibbotson and Associates, the "gold-standard"
provider of historical equity premium data, show that an investment of $1 in 1925 would be worth
$5,116 by 1998, whereas an investment in treasury bills would only be worth $15. (And it is well
known that treasury bill returns generally suffer higher taxes than capital gains!)

The profession falls into three loosely defined camps with respect to why equity premia have
been so high and whether they will continue to be high. The first camp argues that these high
equity premia were necessary to induce investors to participate in the stock market (e.g., Benartzi
and Thaler [1995], Campbell and Cochrane [1999]). This argument implies an equity premium
(possibly) as high in the future as in the past. The second camp argues that the expected returns
necessary to entice investors have fallen in the last few years. This means, stocks can trade for
much higher prices today, which itself is both responsible for the recent stock market
appreciation, and for the expectation of much lower returns in the future (e.g., Heaton and Lucas
[1999]). Closely related are arguments that historical equity premia are mismeasured, and not
indicative of ex-ante equity premium expectations (e.g., Goetzmann and Jorion [1999], Siegel
[1999]). The third camp argues that the stock market has gone crazy and we are all in a bubble
right now. Again, this implies much lower future returns in the future. In contrast to the second
camp, this camp would be less surprised by a crash or crash-like rapid drop in the stock-market.
Although few academics have published this view (except Shiller [2000])---not necessarily
because they do not dare, but because it is difficult to bring unambiguous evidence to bear on
this matter---many seem to individually subscribe to it. [Footnote: This issue is closely connected
to the question of whether Internet stocks are right now overvalued. Once willing to concede that
internet stocks are overvalued, it is not a far step to concede that it is possible that the stock
market as a whole is overvalued, too.]

One can also bring additional evidence to bear on the second question without taking a stance on
the first question: There are a number of publicly accessible forecasts from investors, academics,
corporations. (Welch [2000]). Typically, investors seem to expect higher equity premia,
academics seem to expect equal (or just slightly lower) equity premia, and corporations and
consulting firms seem to expect lower equity premia than those realized in the past. In sum,
these forecasts run counter to the view that equity premia have recently been so high, because
everyone expects them to be lower in the near future. Finally, a new set of working papers are
attempting to attribute "plausible" equity premia based on long-term forecasts of real growth (e.g.,
Diamond [2000], Welch [1998]).

The third question is equally tricky as the first two questions. There is universal consensus that
the equity premium cannot be easily predicted over shorter horizons, such as one month; and
that even if the equity premium can be predicted over a longer horizon (e.g., over a 30-year
forecast), we do not have enough historical data to run regressions to validate 30-year
forecasting claims.

The variable most often mentioned as a possible predictor of equity premia is the prior-year
dividend-yield. This predictability was first explored in a rigorous manner by the seminal papers
of Campbell and Shiller [1988], Fama and French [1988], and Blanchard [1993], which came to
the conclusion that dividend-yields do seem to have predictive ability. In a simple regression
predicting equity premia one-year ahead with dividend-yields, the dividend yield shows great
statistical significance. However, a long line of subsequent research has pointed to various
statistical issues in this early work. Furthermore, most such models predict one-year-ahead
forecasts of negative equity premia as of the year 2000---not a sensible prediction. Yet, even if
there is disagreement of whether documented forecasting ability of dividend yields was real, there
is little disagreement that this predictive ability has disappeared in the 1990s (Goyal-Welch
[2000]).

Where does this leave us? The equity premium is not only the single most important number of
finance, but estimating it is also our most perplexing problem. If the profession fails to make
progress in understanding the process driving the equity premium, progress on many of the most
important problems in finance---proper asset allocation and hurdle rates--are likely to be phyrric
victories only.

II. SELECTED BIBLIOGRAPHY

Benartzi, Shlomo and Richard H. Thaler. "Myopic L Aversion And The Equity Premium Puzzle,"
Quarterly Journal of Economics, 1995, v110(1), 73-92.

Blanchard, Olivier J. "Movements In The Equity Premium," Brookings Papers, 1993, v24(2), 75-
118.

Campbell, John Y. and John H. Cochrane. "By Force Of Habit: A Consumption-Based

Explanation Of Aggregate Stock Market Behavior," Journal of Political Economy, 1999,
v107(2,Apr), 205-251.

Campbell, John Y. and Robert J. Shiller. "The Dividend-Price Ratio And Expectations Of Future
Dividends And Discount Factors," Review of Financial Studies, 1988, v1(3), 195-228.

Fama, Eugene F. and Kenneth R. French. "Dividend Yields And Expected Stock Returns,"
Journal of Financial Economics, 1988, v22(1), 3-26.

Jorion, Philippe and William N. Goetzmann. "Global Stock Markets In The Twentieth Century,"
Journal of Finance, 1999, v54(3,Jun), 953-980.

Goyal, Amit, and Ivo Welch. "Predicting the Equity Premium." UCLA/Yale Working Paper.
http://welch.som.yale.edu/
Heaton John and Deborah Lucas. "Stock Prices and Fundamentals." NBER Macroeconomics
Annual 1999, published by MIT press (edited by Bernanke and Rotemberg).

Mehra, Rajnish and Edward C. Prescott. "The Equity Premium: A Puzzle," Journal of Monetary
Economics, 1985, v15(2), 145-162.

Siegel, Jeremy J. "The Shrinking Equity Premiums," Journal of Portfolio Management, 1999,
v26(1,Fall), 10- 17.

Welch, Ivo. "Views of Financial Economists On The Equity Premium And On Professional
Controversies." Journal of Business, 2000, forthcoming.

III. REACTIONS BY DISCUSSANTS

Each of the discussants was given the article above and asked to address the question, “What do
you teach MBA students about the equity premium?” We thank them for their willingness to
share their ideas and experiences.

------------------------------

PETER BOSSAERTS
California Institute of Technology

The available attempts at explaining the historic U.S. equity premium have been based too much
on the very narrow, stationary, single-consumer, rational expectations equilibrium of Lucas. Too
little is done to deviate from this implausibly strong notion of equilibrium. Rational expectations
equilibria do allow for mistaken expectations. They even allow for disagreement. And incomplete
markets. Moreover, there is an objectionable assumption behind all of modern empirical analysis,
namely that recorded market prices are always equilibrium prices. Too little attention is paid to
genuine dynamics (equilibrium price discovery). Finally, any scientifically relevant attempt at
explaining the historic U.S. equity premium simultaneously will have to explain historic evidence
over other countries (e.g., Japan in the 1990s) that is diametrically opposed (low real rates of
interest, negative equity premium).

-------------------------------

JOHN COCHRANE
University of Chicago, Graduate School of Business

I don't really have much to add. My own view is about 3-4% unconditional and much lower but
positive conditional. Did the average investor in 1947 really think that average stock returns would
be 9% over bonds, with a 16% volatility, and say "no thanks, I don't want to buy more stocks
because that volatility scares me?" Probably not! Hence, much of the postwar sample must be
good luck rather than the unconditional mean.

--------------------------------

GENE FAMA
University of Chicago, Graduate School of Business

The Gordon constant dividend growth model and realized returns produce similar estimates of the
real equity premium for 1872-1949, about 4.0 percent per year. For 1950-1999, the Gordon
estimate, 3.40 percent per year, is only about forty percent of the estimate from realized returns,
8.28 percent. The difference between the realized return for 1950-1999 and the Gordon estimate
of the expected return is largely due to unexpected capital gains, the result of a decline in
discount rates. Forward-looking Gordon estimates of the expected equity premium are about one
to two percent per year. (Comments based on work by Gene F. Fama and Kenneth R. French)

-----------------------

WILL GOETZMANN
Yale University, School of Management

The equity premium is commonly defined as the percentage by which stock market returns are
expected to exceed a riskless bond investment. Theory argues for a positive equity premium. A
rational, risk-averse investor with a riskless investment opportunity should demand greater
compensation for holding a riskier asset -- but how much greater? Empirical estimates of the
equity premium are typically based upon historical realizations of stock and riskless bond returns.
As such a "pure" estimate of the historical equity premium may be impossible. The composition
and leverage of the equity markets continually changes and a purely riskless asset does not exist.
Never-the-less, the average U.S. equity premium generally exceeded 6% per annum over
extended historical periods. Is the historically realized equity premium a good forecast for the
future? The answer depends upon whether the economic factors contributing to the historical
premium can be expected to continue as well.

------------------------------

ROBERT S. HARRIS
University of Virginia, Darden Graduate School of Business

The Market Risk Premium: Expectational Estimates

Ivo Welch's comments nicely capture much recent academic thinking on the market risk premium.
I'd like to add observations from work that directly uses expectational data from financial analysts
to estimate the U. S. market premium. The results do not resolve the equity risk premium puzzle
but provide interesting additions to what counsel might be provided to practitioners and students.

Investigators have most often used averages of historical realizations to estimate a market
premium. This choice has some appealing characteristics but is subject to many arbitrary
assumptions such as the relevant period for taking an average. Practice seems to mirror this
framing around historical returns. Recent survey results on best practices by corporations and
financial advisors (see Bruner et al (1998)) reveals that almost all respondents used some
average of past data in estimating a market risk premium and displayed considerable variation in
the choice of time period and method (arithmetic versus geometric) for averaging. Few
respondents cited use of expectational data to supplement or replace historical returns in
estimating the market premium. Many textbook treatments also rely on historical returns citing the
Ibbotson data for the U.S.

As Welch notes, however, shareholder required rates of return and risk premia are based on
theories about investors' expectations for the future. Fortunately, there is a relatively
longstanding tradition of estimating a market premium using publicly available expectational data
from financial analysts. This approach uses some variant of a discounted cash flow model to infer
the market premium from the combination of analysts' forecasts of future performance and
current stock prices (1).

In my view, four key findings are instructive (2).

First, for the last two decades, the market premium implied by expectational data from financial
analysts is comparable in magnitude to long-term differences (1926 to 1998) in historical returns
between stocks and bonds. As a result, the evidence does not resolve the equity premium puzzle
and suggests that investors still expect to receive large spreads to invest in equity versus debt
instruments.

Second, at least based on current evidence through 1998 the market premium does not appear to
have declined dramatically in the 1990s.

Third: the market risk premium changes over time. Moreover, these changes appear linked to the
level of interest rates as well as ex ante proxies for risk drawn from financial markets. Higher
interest rates appear associated with lower market premia. The significant economic links
between the market premium and a wide array of risk variables suggests that the notion of a
constant risk premium over time is not an adequate explanation of pricing in equity versus debt
markets.

Fourth, using analyst forecasts as a proxy for investor expectations has many desirable features
but more work is need to understand the extent to which optimism by analysts may affect the
empirical estimates of market premia.

In the face of this evidence as well as Welch's comments, what is the message for practice and
education? Humility seems a useful starting point. More research in the area is certainly
warranted. That having been said we should not "throw the baby out with the bathwater". At a
conceptual level the market premium provides large benefits in sharpening thinking about
resource allocation. One conclusion for practice that I draw is that common application of models
such as the CAPM will overstate changes in shareholder return requirements when government
interest rates change because risk premia seem to move inversely with interest rates. This is
consistent with much corporate practice that does not revise hurdle rates for modest variations in
interest rate conditions. A second conclusion is that we should sensitize students to the potential
for risk premium variation. Having debunked the notion that the risk premium is, like Avogadro's
number, a constant from on high, I adopt an administrative standard of a particular market
premium (say 6%) for any class so that we do not constantly revisit the issue. A third implication
is that we should in teaching, practice and research look for objective yet forward looking data
that can be deployed to give insights on the market premium. Finally, our humility on the level of
the market premium should make us take pains to invest in understanding the true underlying
risks and opportunity inherent in an investment (say through sensitivity analysis, simulation or
options frameworks).

(1) See for example Malkiel (1982), Brigham, Vinson, and Shome (1985), Harris (1986) Harris
and Marston (1992,1999). Ibbotson Associates (1998) use a variant of the DCF model with
forward-looking growth rates as one means to estimate cost of equity; however, they do this as a
separate technique and not as part of the CAPM. For their CAPM estimates they use historical
averages for the market risk premium. The DCF approach with analysts' forecasts has been used
frequently in regulatory settings.

(2) These findings are drawn from Harris and Marston (1992,1999) who also summarize some of
the earlier work.

REFERENCES

D. Brigham, D. Shome, and S. Vinson, "The Risk Premium Approach to Measuring A Utility's
Cost of Equity," Financial Management (Spring 1985), pp. 33-45.

R.F. Bruner, K. Eades, R. Harris and R. Higgins, Best Practices in Estimating the Cost of Capital:
Survey and Synthesis," Financial Practice and Education (Spring/Summer 1998), pp. 13-28.

W.T. Carleton and J. Lakonishok, "Risk and Return on Equity: The Use and Misuse of Historical
Estimates," Financial Analysts Journal (January/February 1985), pp. 38-47.
R.S. Harris, "Using Analysts' Growth Forecasts to Estimate Shareholder Required Rates of
Return," Financial Management (Spring 1988), pp. 58-67.

R.S. Harris and F.C. Marston, "The Market Risk Premium: Expectational Estimates Using
Analysts' Forecasts," October 1999, Darden School Working Paper DSWP-99-08.

R.S. Harris and F.C. Marston, "Estimating Shareholder Risk Premia Using Analysts' Growth
Forecasts," Financial Management (Summer 1992), pp. 63-70.

Ibbotson Associates, Inc., 1998 Cost of Capital Quarterly, 1998 Yearbook

Ibbotson Associates, Inc., 1997 Stocks, Bonds, Bills, and Inflation, 1997 Yearbook.

B. Malkiel, "Risk and Return: A New Look," in The Changing Role of Debt and Equity in Financing
U.S. Capital Formation, B.B. Friedman (ed.), National Bureau of Economic Research, Chicago,
University of Chicago Press, 1982.

--------------------------------

JOHN HEATON
Northwestern University, Kellogg Graduate School of Management

Over the last century the average return to holding stocks was much higher than the average
return to holding bonds. If this difference reflected expected returns then the high returns on
stocks should represent compensation for risk. When viewed in isolation the stock market does
appear to be quite volatile. The economy as a whole is much less risky, however. This is
important because the typical household in the United States receives income from wages,
salaries and other sources that more closely resembles aggregate GNP than stock market
returns. The typical household should therefore be willing to invest a substantial amount in the
stock market since the return is high and the risk can be diversified away using the household's
other sources of income. The resulting large demand for stocks would ultimately increase stock
prices and reduce expected returns. The fact that this did not occur historically results in the
"equity premium puzzle." Viewed in this way the equity premium puzzle is really a diversification
puzzle.

There are several potential explanations for this diversification puzzle. First is the fact that stock
ownership is relatively concentrated among wealthy individuals. These individuals tend to have
business income that is less like aggregate income and more like stock returns than the average
household [see, for example, Heaton and Lucas (2000)]. For these people the diversification
possibilities that can be obtained by holding stocks are small. Second, in the past, holding a
diversified portfolio of financial assets was difficult due to high costs of trading, brokerage fees
and the like.

As a result, the typical investor held a portfolio that was much more risky than the stock market
index. This lack of diversification implies that the actual portfolios individuals held were much
riskier than a stock index. Both of these effects imply that historically investors required high
returns to hold equity.

Over time the level of diversification seems to have increased both because investors have been
able to hold better diversified portfolios by holding mutual funds and because wealthy individuals
are able to better diversify their privately held equity. As a result, the required return to holding
stocks may have fallen in recent years which possibly explains the recent dramatic increase in
stock prices.

This argues that looking forward the average premium investors will receive by holding stocks is
likely to be much lower than it was in the past.
References:

Heaton, John and Deborah Lucas (2000), ``Portfolio Choice and Asset Prices; The Importance of
Entrepreneurial Risk,'' Journal of Finance, 55, pp. 1163-1198.

-----------------------------

ROGER IBBOTSON
Yale University, School of Management

The first way that I would estimate ERP is to look at the historical payoff for risk. I would use the
Ibbotson and Sinquefield results reported in the Stocks, Bonds, Bills and Inflation 2000 Yearbook,
published by Ibbotson Associates (www.ibbotson.com) which shows that over the 1926-1999
period common stocks had a 11.3% compound annual return and a 13.3% annual arithmetic
mean return. In contrast, long-term government bond income returns were 5.2%, giving a long
horizon historical arithmetic mean ERP of 8.1%.

The historical payoff for risk is a good guide to the future risk premium, but it is not perfect. First,
there is considerable estimation error even assuming the 74 years returns were drawn from a
stationary distribution. A standard deviation of 20% gives a standard error of 2.7%. Using
shorter estimation periods increases the estimation error. Goetzmann, Ibbotson and Liang (2000)
have constructed a raw data series based upon individual security prices and dividends over the
period 1815-1925. This longer series may help us estimate the ERP with lower estimation error.

Another way to estimate the ERP is to recognize that the stock market is a part of the economy.
In Diermeier, Ibbotson, and Siegel (1984), we assume that the stock market remains a constant
share of the economy. Using historical estimates of real GNP growth, and inflows and outflows of
the stock market, we can calculate the expected return on the stock market. The supply side
estimate of the stock market is substantially lower than the historical ERP, since the stock market
has been increasing its share of the economy. We would not expect this to continue indefinitely,
so that we would consider both methods in making an ERP estimate. I am currently updating and
revising our supply side estimate.

There are several caveats to any estimation method. Is the U.S. the successful survivor, so that
past returns or GNP growth are artificially high? Are we at an artificial peak in the stock market or
economy (a bubble) which makes historical growth an upward biased prediction of the future? Is
the ERP too high based upon reasonable risk aversion parameters? Has the risk decreased,
lowering the ERP?

On the other hand, some caveats might cause us to increase our estimate of ERP. Is future
stock market risk in fact higher than past risk, perhaps because of potential shocks? Are we in a
faster moving "new economy" so that time moves faster, increasing the ERP?

Overall, I think the best estimate of the ERP is to use some combination of the historical ERP and
the supply side estimate of the ERP.

------------------------------

MICHAEL J. MAUBOUSSIN
Chief U.S. Investment Strategist, Credit Suisse First Boston and
Adjunct Professor - Finance and Economics, Columbia Business School

There are three points I stress in discussing the equity risk premium (ERP). First, it is important to
acknowledge that the capital asset pricing model-for all of its elegance-is unlikely to be the last
word on our understanding of risk and reward. Second, the ERP should be estimated ex-ante.
Ex-post definitions come with a lot of calculational baggage, most notably choice of time period
and data non-stationarity. Finally, use a long-term discounted cash flow model to estimate
expected return, and then subtract a long-term Treasury yield to estimate the ex-ante ERP. A
long-term Treasury is used because it matches the duration of most stocks and properly
incorporates expected inflation. I believe that the ERP has been in a range of 2-5% in recent
years. We currently use about 4.0% at CSFB. This suggests an expected long-term nominal
stock market return of about 10%.

One final note. A proper estimate of ERP has obvious significance in asset allocation. But for the
active equity manager-the avocation of many of my students-stock selection is a relative
endeavor. So stock selection distills to anticipating expectation shifts in key operating value
drivers. As a result, ERP is not a defining issue.

-------------------------------

ANDRÉ PEROLD
Harvard University, Harvard Business School

In my MBA investments course, I ask students to value the stock market on the basis of a
discounted cash flow analysis. The essential conclusion of this analysis is that if stocks are not
overvalued, the forward looking risk premium is low (about 3%); or long-run future real cash flow
growth must be extremely high. The result seems robust to the choice of cash flow model.

For example, in the growth perpetuity model applied to stock dividends; the discount rate, k, the
dividend yield y, and the long-run future growth rate of expected dividends, g, are related through
k = y + g. Presently, in the U.S. market, y is less than 2% for cash dividends, and y is less than
3% when net share repurchases are counted as dividends. The U.S. Treasury yield curve is
more or less flat at 6%. If the risk premium is 8%, future dividend growth must be 11% in
perpetuity, or 9% real (assuming the 2% inflation rate imbedded in TIPS), versus the historical
real growth rate of stock dividends of around 3%. If the risk premium is 3%, then future real
dividend growth must be 4% in perpetuity.

We discuss possible explanations for the low ex ante risk premium. Mine is risk management.
There are today the institutions, instruments and technologies to permit efficient risk management
and risk sharing by households, firms and governments. The result is investor portfolios that are
better diversified and a global economy that is safer.
-------------------------------

JAY RITTER
University of Florida, Warrington College of Business

In the 1980s, I followed the textbook mantra that the equity risk premium should be based on
extrapolating the historical average into the future. By the late 1980s, I began to realize how
wrong this was, as the Japanese market soared. This approach predicted that in the 1990s there
would be extremely high returns on Japanese stocks, just as today it implies that there will be
unrealistically high returns on US stocks in the future.

In recent years, I have relied on the dividend growth model: E(r)= div yield + expected growth
rate. Today, with the dividend yield being 1.1% and expected real growth of maybe 3% (stock
option exercise largely cancels out share repurchases in the aggregate), this gives an expected
real return on US equities of about 4%. With inflation-indexed T-bonds giving a real yield of 4%
today, this results in an equity premium of zero. The only way to get a positive equity premium is
to assume that the growth of real EPS will be far above historical trend. The high stock market
has lowered the expected real return on stocks, and the high real rate of interest has squeezed
the equity premium from below.
-------------------------------

ROBERT WHITELAW
New York University, Stern School of Business

What do you teach your students about the market risk premium?

There is substantial disagreement about the magnitude of the market risk premium, and I try to
convey this uncertainty in the classroom. The starting point of my discussion is the historical US
premium. I then talk about why this value might not be a good estimate of the true ex ante
premium (e.g., survivorship bias, estimation error) or of the current forward looking premium (e.g.,
changes in risk aversion). I also bring up international evidence and information about the current
expectations of practitioners and individual investors. Finally, I briefly mention predictable time-
variation, but I emphasize that variation over business cycle frequencies is probably not as
important for long-term decision-making. I make a big effort not to pretend to have a definitive
answer (in general, MBA students can handle ambiguity), but I will give my opinion if asked.

IV. BULLETIN BOARD FOR DISCUSSION OF THE EQUITY PREMIUM

In order to foster discussion about this (and other) issues, we have set up an self-moderated
electronic bulletin board where readers can share their opinions about this topic. The address of
this board is http://ssrn.com/forum/. The board will contain a copy of the materials above, and
we encourage you to post your own thoughts on the topic so the discussion can continue with the
entire profession.