Scandinavian Working Papers in Economics

SIFR Research Report Series,
Institute for Financial Research

No 39: C-CAPM without Ex Post Data

Paul Söderlind ()
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Paul Söderlind: University of St. Gallen, Postal: s/bf-HSG, Rosenbergstrasse 52, CH-9000 St Gallen, Switzerland

Abstract: Survey and option data are used to take a new look at the equity premium puzzle. Survey data on equity returns (Livingston survey) shows much lower expected excess returns than ex post data. At the same time, option data (CBOE's VIX) indicates that investors overestimate the volatility of equity returns. Both facts reduce the puzzle. However, data on beliefs about output volatility (Survey of Professional Forecasters) shows marked overconfidence. On balance, the equity premium is somewhat less of a puzzle than in ex post data.

Keywords: Equity premium puzzle; Livingston survey; CBOE VIX; Survey of professional forecasters

JEL-codes: E13; E32; G12

16 pages, December 15, 2005

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