Economics, Econometrics and Finance
4 years ago

Unveiling the True Equity Premium: Investors May Have Been Overestimating Returns

RePEc: Research Papers in Economics
Stare down the barrel and center the crosshairs: Targeting the ex ante equity premium
Glen Donaldson, Mark J. Kamstra, Lisa A. Kramer

Paper Summary

The article discusses the equity premium puzzle, which is the mystery of why stocks have historically returned more than safer investments. The researchers created a method to estimate the true premium investors expect before buying stocks, which is around 4 percent, much lower than previously thought. This finding suggests that the range of possible premiums is narrower than previously believed.

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