Proponents of the bubble view believe that when using historical averages to estimate an equity premium,
A)the average should be based on the last 10 to 15 years of historical data only since earlier data is no longer descriptive of current conditions, e.g., bubbles.
B)the average should be calculated using data from the earliest recorded point in time in order to ensure that any temporary bubbles are smoothed out.
C)the equity premium will be lower after recent market surges.
D)the equity premium will be higher after recent market surges.

Question

Quizplus · Accepted Answer

Proponents of the bubble view argue that equity premiums will be lower following periods of market surges, as these surges are seen as unsustainable and likely to revert to mean, thus impacting the estimation of future premiums.

Proponents of the Bubble View Believe That When Using Historical