If the Stock Market Return in 2014 Turns Out to Be

question 19

Essay

If the stock market return in 2014 turns out to be 18%, what will happen to our estimate of the "normal" risk premium? Does this make sense?

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Definitions:

Construct Validity

The extent to which a test or instrument accurately measures the theoretical construct or concept it is intended to assess.

Face Validity

The degree to which a measurement device appears to accurately measure a variable.

Criterion Validity

The extent to which a measure is correlated with, or predictive of, an outcome of interest, often assessed through correlations with other known indicators.

Divergent Validity

A measure of validity that ensures an assessment does not strongly correlate with tests from unrelated constructs, thus proving its specificity.