Can self-managed superannuation fund trustees earn the equity risk premium?

Phillips, Peter J. and Baczynski, Michael P. and Teale, John (2009) Can self-managed superannuation fund trustees earn the equity risk premium? Accounting Research Journal, 22 (1). pp. 27-45. ISSN 1030-9616

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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.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Author's version deposited in accordance with the copyright policy of the publisher.
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 03 Aug 2009 05:32
Last Modified: 16 Oct 2014 03:25
Uncontrolled Keywords: financial risk; interest rates; pension funds; trustees
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management
17 Psychology and Cognitive Sciences > 1702 Cognitive Sciences > 170202 Decision Making
14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970114 Expanding Knowledge in Economics
Identification Number or DOI: 10.1108/10309610910975315

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