Final answer:
Historical equity risk premiums varied across countries and time periods, influenced by different economic conditions and including sensitivity to inflation.
Step-by-step explanation:
The historical equity risk premiums, as studied by Dimson, Marsh, and Staunton, demonstrate variability rather than consistency over time and between different countries.
They varied across countries and time periods, reflecting diverse economic, financial, and geopolitical conditions. These premiums were influenced by several factors, including inflation.
Contrary to being unaffected, equity risk premiums are typically sensitive to inflation levels. In nations experiencing high inflation, governments often index contracts, wages, and interest rates to inflation to help retain purchasing power.
This indexing is a strategic response to inflation that might be politically unpopular in high-income economies. Even in periods of economic growth, some countries have sustained high inflation rates, such as 10% to 30% annually, which would be considered high by recent U.S. standards.
The historical equity risk premiums of the countries studied by Dimson, Marsh, and Staunton varied across countries and time periods. Option d) is correct.
The equity risk premiums did not remain constant over time, were not higher in developed countries, and were not unaffected by inflation.