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This paper reports implications from an assumption that total value of equity regresses toward total value of debt and loan liabilities over time. I show that, for example, change in value of equity markets equals change of total value of debt and regression factor determined ten years earlier plus change of value of residual factor and that residual factor explains short and mid-term variance of value of equity markets. Furthermore, I show that expected change in value of equity markets equals constant changes of total value of debt and regression factor and expected change of residual factor and that the constant changes drive the outperformance of equity markets over government bond yields.

I study if changes in total value of debt ten years earlier explain expected value or mean of changes of value of US equity markets in a long run. I find that, when total value of debt is controlled over time, mean of quarter, annual, five-year and ten-year changes of Russell 3000 and S&P 500 price indices decreases near to zero. Results are statistically significant at 5 to 0.1 % level. I thus conclude that changes in total value of debt ten years earlier do explain expected changes in value of US equity markets in a long run.

This paper discusses the theory that risk factors divide to the company specific and asset specific risk factors. The first group affects to the expected value of an equity of a company whereas the second only to the positive cash outflows for a specific asset. I find that equity market, value, and quality factors are indeed possible company specific risk factors with influence on an expected equity of a company and dividend and volatility factors are possible stock specific risk factors affecting positively to dividends and other cash payments from a company to shareholders. These results are statistically significant and important for our understanding of risk factors and their characteristics.

The purpose of this paper is to aggregate some of my thoughts and perspectives, which are continuation to my previous papers, from the last months. The paper consists of different independent parts that are separated by headings. These parts are however somewhat linked to each other, and together they constitute a whole. Hence, I have excluded forewords, closing words, and other words not included in these parts from the paper. This paper starts with a relationship between stock price and true value.

I share some thoughts regarding realized, required, and expected returns and risk-free rate. I provide simple mathematics to divide return to change in real equity value and change in demand-supply curve of an asset. I also consider risk-free rate in terms of inflation and additional interest rate that compensates for liability risk. Finally, I show mathematically how this risk-free rate affects implications about realized and expected returns of assets with certain payoff. This is a perspective paper.