Friday, 27 February 2009

Long-term investing & the equity premium

Juts a quickie, but there's a theory out there advanced by the likes of Richard Thaler that the equity premium (the amount equities outperform say bonds) may be due to myopic loss aversion - a mixture of investors seeking to avoid losses and frequently reviewing portfolios. If this is the case, does it follow that if investors like pension funds can be persuaded to develop genuinely long-term investment strategies then the equity premium would reduce?

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