The Equity Risk Premium.

In this article by the New York Federal Reserve the equity risk premium is given some consideration to examine whether stocks are currently undervalued. See this: http://libertystreeteconomics.newyorkfed.org/2013/05/are-stocks-cheap-a-review-of-the-evidence.html

In the simplest form the equity risk premium is the yield difference between risk free treasury securities (bills, notes or bonds) versus either the current earnings yield on stocks or on the future expected return on stocks. In my opinion the treasury yield curve has been so warped by Fed buying of securities that the equity risk premium has probably become useless a predictor of returns (if it was ever a predictor in the first place!).

I have never used the equity risk premium to make an investment decision. It might be relevant to a pension plan manager who manages billions of dollars but to regular folks I think it is a red herring.

If you want to learn more about the equity risk premium go to Prof. Damodaran's website or blog. See here: http://aswathdamodaran.blogspot.ca/