To further explore the Market Premium, consider the chart below. Equities grew much more quickly than bonds and treasury bills, and the small-cap index consistently outpaced the large-cap index.
The following chart highlights how the three other equity premiums (company size, relative price, and profitability) have persisted globally and over time.
While the above premiums have persisted globally and over time, the premiums are not guaranteed to show up every year. The chart below shows many periods where the premiums were negative over 10-year rolling periods.2
Keeping these periods of underperformance in perspective is important though. While there can be periods of negative returns, these premiums have persisted over time. For this reason, we encourage our clients to use the Dimensional approach as part of creating a long-term investment strategy.
Note: The premiums above only represent equities. Dimensional has also identified premiums related to fixed-income equities. For more information on these premiums, click here and reference slides 16-27.