Investors should be piling into equities, but they are not

The gap between the return on corporate equity and short-term or risk-free long-term interest rates is wide and has widened in OECD countries. Investors should therefore be much more attracted to equities than to bonds or cash and be piling in to equities. Yet this is not the case, which explains why share prices are lagging behind corporate earnings. Th is suggests there may be an irrational ly high aversion to equit y risk , putting investors off investing in equities despite the considerable excess return provided by corporate capital.