Junior Can't Borrow: A New Perspective on the Equity Premium Puzzle

George M. Constantinides (), J.B. Donalson and Rajnish Mehra ()

Working Papers from Columbia - Graduate School of Business

Abstract: Ongoing questions on the historical mean and standard deviation of the return on equities and bonds and on the equilibrium demand for these securities are addressed in the context of a stationary, overlapping-generations economy in which consumers are subject to a borrowing constraint. The key feature captured by the OLG economy is that the bulk of the future income of the young agents is derived from their wages forthcoming in their middle age, while the bulk of the future income of the middle-aged agents is derived from their savings in equity and bonds.

Keywords: EQUITY; BONDS (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 1997
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Working Paper: Junior Can't Borrow: A New Perspective on the Equity Premium Puzzle
Working Paper: Junior Can't borrow: A New Perspective on the Equity Premium Puzzle."
Working Paper: Junior Can't Borrow: A New Perspective on the Equity Premium Puzzle (1998)
Journal Article: Junior Can'T Borrow: A New Perspective On The Equity Premium Puzzle (2002)
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