Can self-managed superannuation fund trustees earn the equity risk premium?
Purpose – The purpose of this paper is to determine whether self-managed superannuation fund (SMSF) trustees earn: the equity risk premium or any premium to the riskless rate of interest. Design/methodology/approach – Using a sample of 100 SMSFs, the average annual returns since inception of the funds in the sample are compared with: the average annual equity risk premium since that time and the average yield of Commonwealth Government Securities since that time. Findings – The investigation reveals: the SMSFs in the sample do not earn the equity risk premium and the SMSFs in the sample did not earn a premium to riskless rate of interest. This leads to the conclusion that the SMSFs have borne risk without commensurate reward. Research limitations/implications – The trustees' rationale for making particular investment decisions and the consistency of the portfolio structures with the risk profiles of the trustees are two areas that may be fruitfully explored in future research. Practical implications – For SMSF trustees, a simple portfolio that divides assets between (unmanaged) index funds and risk-free securities on the basis of trustees' risk aversion may generate better results than the existing portfolios. For policy makers, the relatively poor performance of SMSFs implies that the superannuation system as currently structured may not be generating returns that will maximize retirement incomes. Originality/value – The paper provides the first comparison of SMSF returns with the equity risk premium and the riskless rate of interest measured at appropriate horizons.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (2009)
Issue (Month): 1 (July)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=arj Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
- Robert J. Barro, 2006.
"Rare Disasters and Asset Markets in the Twentieth Century,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 121(3), pages 823-866.
- Barro, Robert, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," Scholarly Articles 3208215, Harvard University Department of Economics.
- John Y. Campbell, 2000.
"Asset Pricing at the Millennium,"
Harvard Institute of Economic Research Working Papers
1897, Harvard - Institute of Economic Research.
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- David A. Marshall & Nayan G. Parekh, 1999. "Can Costs of Consumption Adjustment Explain Asset Pricing Puzzles?," Journal of Finance, American Finance Association, vol. 54(2), pages 623-654, 04.
- Grossman, Sanford J. & Shiller, Robert J., 1982.
"Consumption correlatedness and risk measurement in economies with non-traded assets and heterogeneous information,"
Journal of Financial Economics,
Elsevier, vol. 10(2), pages 195-210, July.
- Sanford J. Grossman & Robert J. Shiller, 1981. "Consumption Correlatedness and Risk Measurement in Economies with Non trade Assets and Heterogeneous Information," NBER Working Papers 0690, National Bureau of Economic Research, Inc.
- William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
- Breeden, Douglas T., 1979. "An intertemporal asset pricing model with stochastic consumption and investment opportunities," Journal of Financial Economics, Elsevier, vol. 7(3), pages 265-296, September.
- Peter J. Phillips & Alex Cathcart & John Teale, 2007. "The Diversification and Performance of Self-Managed Superannuation Funds," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 40(4), pages 339-352, December.
- Philippe Jorion & William N. Goetzmann, 1999. "Global Stock Markets in the Twentieth Century," Journal of Finance, American Finance Association, vol. 54(3), pages 953-980, 06.
- Tim Brailsford & John C. Handley & Krishnan Maheswaran, 2008. "Re-examination of the historical equity risk premium in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(1), pages 73-97.
- D. Cass & J. E. Stiglitz, 1972. "Risk Aversion and Wealth Effects on Portfolios with Many Assets," Review of Economic Studies, Oxford University Press, vol. 39(3), pages 331-354.
- Blume, Marshall E & Friend, Irwin, 1975. "The Asset Structure of Individual Portfolios and Some Implications for Utility Functions," Journal of Finance, American Finance Association, vol. 30(2), pages 585-603, May.
When requesting a correction, please mention this item's handle: RePEc:eme:arjpps:v:22:y:2009:i:1:p:27-45. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.