A New Look at the Equity Premium. A Survey of Collegiate Financial Faculty

Scientific Essay from the year 2007 in the subject Business economics - Miscellaneous, grade: A, Western Illinois University, language: English, abstract: This paper deals with the difference of potential returns of diverse assets within a long-term period. Recent articles investigated an unexplainable abnormality of long term returns of stocks in comparison to risk-free securities even if stocks were risk- adjusted. This phenomenon is called the Equity Premium Puzzle.§§With this paper we want to investigate how current investors make use of the disclosures of these papers. Since one assumption of capital markets is that any information is available to any investor in the world, any investor who invests on a long term basis would act irrational if she invests within the bond market, while she could earn a lot more money in the stock market. Furthermore this fact of the existence of not rational acting investors might show that capital markets are not that efficient as expected or information among investors are not shared sufficiently through markets as an earlier study showed.§§In our study we created a questionnaire of about 22 questions. All questions which were applied were held superficially, so that the respondent had no clue which goal we were looking for with that survey. We distributed our questionnaire to all available investors of all different ages. However we tried to focus on those investors with a long time investment horizon, such as students, pupils or early workers in the end 20's or less. Since the Equity Premium Puzzle is not only a national issue, we did our survey not only in the United States of America but also in Germany.