The Risk Premium an Indicator of Investor Rationality
Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Are there different equity premiums in different sectors of the stock market? The TIME sector is compared to the manufacturing sector as well. To estimate the risk premium a discounted cash flow model is used where all data are set as fixed with exeption of the risk premium. This approach is used to test if investors where adhered with bound rationality as per 2000-03-15. The results show significantly different average risk premiums for the examined groups when company specific betas are used. This result is a violation of the CAPM where the risk premium is supposed to be equal for all companies. This result can be explained by three different reasons; CAPM is false, the thesis is bound by errors or investors are bound rational.
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IdentifiersURN: urn:nbn:se:su:diva-2201OAI: oai:DiVA.org:su-2201DiVA: diva2:191108