Journal article
The equity risk premium a solution
Journal of monetary economics, Vol.22(1), pp.117-131
07/01/1988
DOI: 10.1016/0304-3932(88)90172-9
Abstract
In ‘The Equity Risk Premium: A Puzzle’, Mehra and Prescott (1985) developed an Arrow-Debreau asset pricing model. They rejected it because it could not explain high enough equity risk premia. They concluded that only non-Arrow-Debreu models would solve this ‘puzzle’. Here, I re-specify their model, capturing the effects of possible, though unlikely, market crashes. While maintaining their model's attractive features, this allows it to explain high equity risk premia and low risk-free returns. It does so with reasonable degrees of time preference and risk aversion, provided the crashes are plausibly severe and not too improbable.
Details
- Title: Subtitle
- The equity risk premium a solution
- Creators
- Thomas A. Rietz - University of Iowa
- Resource Type
- Journal article
- Publication Details
- Journal of monetary economics, Vol.22(1), pp.117-131
- Publisher
- Elsevier B.V
- DOI
- 10.1016/0304-3932(88)90172-9
- ISSN
- 0304-3932
- eISSN
- 1873-1295
- Language
- English
- Date published
- 07/01/1988
- Academic Unit
- Finance
- Record Identifier
- 9984380524502771
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