In simple terms, the equity risk premium puzzle is
that looking over long-time series of returns "the returns to
investors on equities have been on average so much higher than
returns on U.S.Treasury Bonds, that it is hard to explain why
investors buy bonds, even after allowing for a reasonable amount of
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 investors
from a risk/return perspetive.
This statement is true or false, could you explain? Thanks.
The photo is wrong, just look at the words.
This statement is true, investors should buy stocks only from the perspective of long term and historical returns have suggested that stocks offer more return than bonds .
But at the time of adversity, when stocks fall, the bonds offer you with caution, stability and diversification and past return are never a guarantee for future return in share market. So one should choose carefully always as they say never to put your all eggs in one basket.
In simple terms, the equity risk premium puzzle is that looking over long-time series of returns...
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