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Advanced Personal Financial Planning Conference 2016


10 - Risk Premiums or Popularity Premiums?


Jan 18, 2016 1:35pm ‐ Jan 18, 2016 2:50pm

Description

Premiums are the return payoffs that endure even after they are well understood.  But are all premiums risk premiums? We study global equity markets and demonstrate that most equity premiums are not associated with extra risk. Investors are usually averse to risk, but risk is only one dimension of a lack of popularity.  Investors prefer stocks that are more familiar, scalable, exciting and liquid. They are willing to pay a higher price and get a lower return to get what they want. On the other hand, investors demand a return premium to induce them to invest in the less popular securities. Attendees will learn:
• What the difference is between a long-term pricing premium and a mispricing and between a beta and an alpha
• The difference between risk premiums and popularity premiums
• Which factors are related to pricing premiums and which factors are merely attribution factors

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