These probably have about the same expected return going forward (we have no reason to believe that the US will have better economic growth than Europe or Japan)
I was largely going off the conventional wisdom and the a priori belief that we can’t make good predictions about countries’ future economic growth. There’s more to it than that but I don’t have any good sources off hand.
To be clear, the efficient-market hypothesis says nothing about economic growth: as I understand it the demographics of the US relative to Japan in particular are a good reason to expect higher growth in the US over the long term. What it says is that facts such as that (which are widely known and understood) should already be accounted for in stock prices, and so you shouldn’t be able to get an ‘easy win’ by betting on such trends.
The efficient-market hypothesis should still predict that we will see equal risk-adjusted returns from any country. If the US and Japan have equal risk (which they probably don’t but let’s say they do), and most people expect the US to see more economic growth, then the US market should be more highly valued than Japan’s to the point where the expected market returns from each are the same. Otherwise you could get an easy win by buying US stocks instead of Japanese stocks.
Any pointers to sources on this?
I was largely going off the conventional wisdom and the a priori belief that we can’t make good predictions about countries’ future economic growth. There’s more to it than that but I don’t have any good sources off hand.
You could appeal to the efficient market hypothesis to justify yourself here i reckon. https://en.wikipedia.org/wiki/Efficient-market_hypothesis
To be clear, the efficient-market hypothesis says nothing about economic growth: as I understand it the demographics of the US relative to Japan in particular are a good reason to expect higher growth in the US over the long term. What it says is that facts such as that (which are widely known and understood) should already be accounted for in stock prices, and so you shouldn’t be able to get an ‘easy win’ by betting on such trends.
The efficient-market hypothesis should still predict that we will see equal risk-adjusted returns from any country. If the US and Japan have equal risk (which they probably don’t but let’s say they do), and most people expect the US to see more economic growth, then the US market should be more highly valued than Japan’s to the point where the expected market returns from each are the same. Otherwise you could get an easy win by buying US stocks instead of Japanese stocks.