For more than a century, the total return on the aggregate stock market in excess of the riskless interest rate has averaged approximately six percent per annum. An equity premium of this magnitude provides tremendous encouragement to investors in Australian equities, particularly the trustees of Australia's 400,000 self managed superannuation funds (SMSFs) who invest more than one-third of their portfolios in Australian shares. This is subject to the proviso that the investors can actually earn the equity premium. We question whether SMSF trustees actually earn a rate of return on their portfolios that matches the equity premium measured on the aggregate stock market. Using a sample of Australian self managed superannuation funds, we investigate whether the investors in the sample have earned the equity premium on (1) their overall portfolios; and (2) the equity securities component of their overall portfolios. We find that the SMSFs did not earn the aggregate stock market's equity premium on their overall portfolios or the equity components of those portfolios. Indeed, they did not earn any risk premium at all.
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