A Reconsideration of the Equity Premium Puzzle

Miguel Cantillo Simon ()
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Miguel Cantillo Simon: Universidad de Costa Rica

No 201702, Working Papers from Universidad de Costa Rica

Abstract: This paper develops an equilibrium asset pricing framework that allows for investor aggregation, and assumes a log-normally distributed aggregate endowment growth. This framework allows me to derive the equilibrium risk free rate, the expected market return, and expected returns for individual securities. To test how reasonable the results are, I use data of several developed economies from Campbell (2003, 2017) to find a median value of relative risk aversion of 1.57, and a time preference rate of 4.58%. The framework allows me to estimate a version of the CAPM and a multi-period pricing model.

Pages: 15 pages
Date: 2017-05, Revised 2017-05
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:fcr:wpaper:201702

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