THE IMPACT OF THE GLOBAL FINANCIAL CRISIS ON THE EQUITY PREMIUM PUZZLE: EVIDENCE FROM THE DUTCH EQUITY MARKET

Abstract

This paper investigates the equity premium puzzle during the global financial crisis and how it is affected by investor sentiment, volatility and trade volume. We use the AEX as a proxy for the market portfolio over the years 2002 – 2016. We replicate the study of Fama and French to determine the theoretical benchmarks. We report an equity premium of 4.11% over the whole sample period. Using an AR(1) model, we find that investor sentiment has a significant negative impact on the equity premium puzzle. We find a significant positive relationship between volatility and the excess equity premium. We find hardly any evidence for a significant effect of trade volume within our data.