Solution to the Equity Premium Puzzle Using the Sufficiency Factor of the Model

Atilla Aras

No b9afj, OSF Preprints from Center for Open Science

Abstract: This study provides the solution to the equity premium puzzle. The new model was developed by including the behavior of investors toward risk in financial markets in prior studies. The calculations of this newly tested model show that the value of the coefficient of relative risk aversion is 1.033526 by assuming the value of the subjective time discount factor to be 0.99. Since these values are compatible with the existing empirical studies, they confirm the validity of the newly derived model that provides the solution to the equity premium puzzle.

Date: 2020-10-31
New Economics Papers: this item is included in nep-cwa, nep-ore and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:osf:osfxxx:b9afj

DOI: 10.31219/osf.io/b9afj

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