Why might the equity risk premium in the United Kingdom have been negative during this period?...
Why might the equity risk premium in the United Kingdom have been negative during this period?
A.
The returns on bonds outpaced the returns on stocks.
B.
Investors fled to other countries.
C.
Banks were paying high interest rates on bonds.
D.
The returns on stocks outpaced the returns on bonds.
Homework Answers
Equity risk premium is the excess return provided by stocks over bonds, because the investor takes higher risk by investing in stocks rather than bonds.
If the returns on stocks were negative in this period, there would be many reasons for this, like the demand for stocks has down, the investors may spread into global markets, investors may having better alternatives than investing in stocks, the pesimist conditions in the equity market, the uncertain conditions and so on.
Option A is the right answer to the given question. May the bonds were providing attractive returns than stocks, and investors may prefers to bonds than stocks.
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risk aversion"(Wikipedia entry on equity risk premium). This
implies that, other things being equal, a steep drop in overall
share price makes buying shares even more attractive to...
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