Estimating the Equity Risk Premium

I made an attempt to estimate the Implied Equity Risk Premium (iERP), empirically, using historic data. Using the CAPE ratio and bond yields to calculate a spread measure as the independent variable and the subsequent 10 year returns, we can measure the expected excess returns for stocks compared to bonds. In theory, this measure can be used as a proxy for equity risk premium. The spread measure is a bastardized ECY metric, but ditches inflation and does a slightly better job of capturing relative yield data. For instance, ECY sees no difference between an \[earning yield of 4% & bond yield of 6%\] vs \[earnings yield of 10% & bond yield of 12%\]. The updated metric accounts for the former being having 50% higher bond yield vs only 20% for the latter. [Here's the full write-up.](https://riskpremiumresearch.substack.com/p/estimating-the-equity-risk-premium) In here, there are interactive charts. It's pretty interesting to see what the starting metrics looked like just before long, sustained bull (or bear) runs. There's pretty clear correlation. I'm curious of your thoughts on using this sort of methodology to at least take the temperature of the market, if not going further and using this measure to discount cash flows or make asset allocation decisions based on this data. [Valuation Spread vs Forward Excess Returns](https://preview.redd.it/u0ndpw5qu7zg1.png?width=1119&format=png&auto=webp&s=6c959b0df4065d6ab184c60aaa15dbc58d495d20) There's obviously some aspects of the study that aren't perfect. Some criticisms of the CAPE ratio have been discussed before. But even with these considerations, CAPE should be a usable metric to get us in the ballpark, and should still be better than a raw trailing PE ratio. Also, this methodology isn't very conducive for practitioners placing their own forecasts on top (such as projecting higher or lower medium term earnings growth). But one could probably use this as a baseline, and then flex the measure using their own assumption.