This monograph maps nine centuries of data into financial eras, showing how trade, war, inflation, and government drive shifting equity risk premia, bond returns, and regime-based asset allocation decisions today.
Summary
Financial markets do not follow one timeless pattern — returns change sharply by era. So, practitioners should anchor asset allocation, risk assumptions, and forward-looking equity risk premium (ERP) decisions to the financial regime in which they are operating, not to long-run averages, according to “Five Financial Eras: How Financial Markets Transformed the World.”
This monograph divides history into five eras — financial renaissance, mercantilism, free trade, World Wars and Cold War, and globalization — and into some 20 generational “periods.” Each era has distinct profiles for stock, bond, and cash returns, because policy and geopolitics shift the regime. The report delivers a regime-aware map that investors can use to anchor portfolio decisions to the era they are in — rather than the one they just left.
The monograph focuses on the realized ERP — how much stocks earned over bonds or bills in the past — setting it apart from the expected ERP that investors plug into forecasts. Its practical message is simple: No one fixed ERP exists. It moves a lot over time and varies across markets.
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What the evidence shows
During the World Wars and Cold War (1914–1981), real bond returns were often negative, while equities fared better, lifting the realized ERP, according to the report. In the globalization era (1981–2025), both stocks and bonds delivered strong real returns, compressing — but not eliminating — the ERP. The report demonstrates that the differences reflect inflation dynamics, trade openness, and the degree of state intervention. The ERP tends to widen in inflationary regimes, primarily because bonds and bills suffer severe real losses, not because equities boom. When inflation breaks, equities can recover some real value; fixed-income losses are largely permanent.
Private vs. public capital
The monograph tracks the balance between private and public capital via the ratio of equity market capitalization to government debt. It says that peace-and-trade eras allow equity capitalization to outgrow public debt, while war and heavy state direction reverse the balance. For example, in 2024, market cap exceeded government debt in the United States (~156%), United Kingdom (~142%), and France (~142%).
Today’s regime: “Technology Wars”
Since 2020, governments have used tariffs, sanctions, and controls to secure leadership in AI, chips, biotech, and energy. Pandemic-era stimulus and supply frictions produced the sharpest after-inflation bond losses in modern developed-market history (2021–2023), while equity leadership concentrated in technology, communications, and health care. Investors should expect bond headwinds and a higher realized ERP — largely because fixed income is weak.
Growing global synchronization
Markets around the world now move together much more than they used to. Information travels instantly, so shocks in one country quickly spill into others. As a result, bull and bear markets often start and end at the same time across countries, and regime shifts spread faster. This tighter linkage leaves investors less time to react and makes early recognition of turning points far more important.
Five key takeaways
Investors should do the following:
- Allocate by regime, not averages. Calibrate returns, correlations, and discount rates to the current era and its drivers.
- Make TWIG (trade, war, inflation, and government) your macro compass. Track TWIG to anticipate return-regime changes.
- Treat the ERP as variable. Use realized-ERP history to bound expectations; do not import a single ERP into discounted cash flows or hurdle rates.
- Watch private versus public balance. Favor markets where equity capitalization sustainably exceeds government debt.
- Position for the Technology Wars. Expect bond headwinds, concentrated equity leadership, and faster cross-border contagion; build portfolios that can pivot as regimes turn.