In this paper, we study the role of subjective risk premia in explaining subjective expected return time variation and disagreement using the long-term Capital Market Assumptions of major asset managers and investment consultants from 1987 to 2022. We find that market risk premia explain most of the expected return time variation, with the rest explained by alphas. The risk premia effect is almost entirely driven by time variation in risk quantities as opposed to risk price. Nevertheless, risk price explains about half of the transitory effect of risk premia on expected returns. Market risk premia also explain most of the expected return disagreement, but in this case alphas have a quantitatively significant effect, and risk price and risk quantities are roughly equally responsible for the risk premia effect. Our results provide benchmark moments that asset pricing models should match to be consistent with institutional investors' beliefs.

We study the equity, Treasury bond, and corporate bond risk premium expectations of asset managers, investment consultants, wealth advisors, public pension funds, and professional forecasters. Subjective risk premia vary one-to-one with objective risk premia that are available in real time and known to be countercyclical (i.e., high in recessions and low in expansions). Despite their significant countercyclical time-series variation, several subjective equity premia vary more in the cross-section than in the time series. We tie this heterogeneity in subjective equity premia to heterogeneous expectations about long-term valuations. Overall, the results support asset pricing models that generate countercyclical risk premia and heterogeneous expectations.