The Explanatory and Predictive Power of the Potential Payback Period (PPP)–Derived Stock Risk Premium (SRP): Evidence from Ten Major Equity Markets (February 2025–February 2026)

This article evaluates the explanatory and predictive power of the Stock Risk Premium (SRP)—a return-based measure derived from the Potential Payback Period (PPP)—when applied to national equity markets. Using SRP values calculated ex ante as of February 7, 2025, for ten major stock markets, we examine their relationship with equity market performance observed over the subsequent twelve months, through February 6, 2026. The results reveal a strongly positive relationship between SRP and future performance, with SRP explaining up to 47% of the cross-market variation in returns. These findings provide empirical validation that SRP constitutes a structurally grounded, forward-looking, and relevant valuation signal for anticipating the relative evolution of equity markets. They thus pave the way for a more comprehensive and coherent approach to global asset allocation.