Historical data for the S&P 500 Index show an average excess return over Treasury bills of about
Question:
Historical data for the S&P 500 Index show an average excess return over Treasury bills of about 8.5% with standard deviation of about 20%. To the extent that these averages approximate investor expectations for the sample period, what must have been the coefficient of risk aversion of the average investor? If the coefficient of risk aversion were 3.5, what risk premium would have been consistent with the market’s historical standard deviation?
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Substituting the historical mean and standard deviation ...View the full answer
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Related Book For 
Essentials Of Investments
ISBN: 9780073368719
7th Edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
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