I’ve added Podcast #89 to the “RobCasts” section of the site. It’s called The Equity Risk Premium Explained! (Perhaps)
Academics have long been puzzled by the 6.5 percent real return paid to long-term stockholders; they say that the risk premium is too high. It may be that the reason why the nominal risk premium is so high is that only a small percentage of stockholders (Rational Investors) earn the average return or better in the real world; most investors follow a Passive Investing approach and are forced to sell in the huge price crashes that result when highly emotional strategies become popular.