Monday, July 22, 2013

Dirk Ehnts — The equity premium puzzle and the default of Detroit

Did the profession of actuaries by using the equity premium puzzle arrive at a “wrong” rate of return? If so, should not all plans be redesigned? How to do that, without causing an earthquake on financial markets? These must be unnerving questions for pension funds and financial sector firms in general. However, these should be questions to be discussed in the open, in newspapers and journal articles. The manipulation of the US stock market by the Fed might be legal, but as a result it should be clear to everybody that stock market prices are heavily influenced by the central bank and financial market regulation. Should the Fed have a goal for the Dow Jones? Should it just watch it slip down again after quantitative easing failed to increase economic growth and only succeeded in redistributing wealth?

Detroit’s financial problems leave us with urgent questions about the design of pension plans and the role of financial markets.
econoblog 101
The equity premium puzzle and the default of Detroit
Dirk Ehnts | Berlin School for Economics and Law


2 comments:

Matt Franko said...

Everyone has been trained to expect about a 6% 10-yr UST rate...

Instead these idiots impose a ZIRP for now going on 5 years...

Tom Hickey said...

Everyone has been trained to expect about a 6% 10-yr UST rate...

Instead these idiots impose a ZIRP for now going on 5 years...


Good argument against monetarism. Unintended consequences will get you when using a broad approach.