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The Equity Risk Premium and the Equity Premium Puzzle
2016All of finance rests on the proposition that investors dislike risk and demand higher returns as compensation for bearing risk. In behavioral terms, the equity risk premium may be regarded as the additional rate of return that risk-averse investors, as a class, demand in exchange for the burden of bearing volatility and the attendant risk of downside ...
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2017
On average, equities historically deliver returns that exceed those on safe assets by several percentages every year. Over time and in nearly all developed economies, the equity risk premium is considerable. Yet puzzles persist. Despite that premium, why do so many potential investors avoid holding stocks?
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On average, equities historically deliver returns that exceed those on safe assets by several percentages every year. Over time and in nearly all developed economies, the equity risk premium is considerable. Yet puzzles persist. Despite that premium, why do so many potential investors avoid holding stocks?
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A resolution of the equity premium puzzle
Economics Letters, 1990zbMATH Open Web Interface contents unavailable due to conflicting licenses.
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The Equity Premium Puzzle: A Reconciliation
SSRN Electronic Journal, 2008This paper estimates the risk aversion for households accounting for their lifetime consumption risk. Households view the overall lifetime uninsured consumption risk when they optimize resources, which based on micro data varies across households. Thus, representing households’ consumption by merging cross-sectional micro data into the single Euler ...
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The Private Equity Premium Puzzle Revisited
2011L’auteure applique à une plus longue période la méthode qu’utilisent Moskowitz et Vissing-Jørgensen (2002) pour calculer le rendement des investissements des entrepreneurs américains. En premier lieu, en suivant la même approche qu’eux, elle reproduit les résultats initiaux obtenus à partir de l’enquête sur les finances des consommateurs pour les ...
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Another Look at the Equity Risk Premium Puzzle
German Economic Review, 2015Abstract The model of Mehra and Prescott (1985, J. Econometrics, 22, 145-161) implies that reasonable coefficients of risk-aversion of economic agents cannot explain the equity risk premium generated by financial markets. This discrepancy is hitherto regarded as a major financial puzzle.
Bamberg, Günter, Heiden, Sebastian
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On the Relation between the Credit Spread Puzzle and the Equity Premium Puzzle
SSRN Electronic Journal, 2008Structural models of default calibrated to historical default rates, recovery rates, and Sharpe ratios typically generate Baa-Aaa credit spreads that are significantly below historical values. However, this credit spread puzzle can be resolved if one accounts for the fact that default rates and Sharpe ratios strongly covary; both are high during ...
Long Chen +2 more
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A Further Equity Premium Puzzle
2017Abstract Mehra and Prescott (1985) point out that it is difficult to reconcile certain empirical facts about equity and debt returns and the process of consumption growth with reasonable assumptions about the relative rate of risk aversion and the pure rate of time preference, in a conventional infinite-horizon model with an ...
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New Look at the Equity Premium Puzzle
Journal of Finance Issues, 2007The equity premium puzzle is based on the common observation that in order for stock returns to be much higher than those offered by government bonds in the United States, investors must ultimately have incredibly high risk aversion. This situation is not unique to the United States, as it can be found elsewhere in other industrialized nations.
Jeremy Alexander +2 more
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Life with habit and expectation: A new explanation of equity premium puzzle
Economic Notes, 2021Boyi Zhuang
exaly