Solution to the Equity Premium Puzzle with Time Varying Variables

Atilla Aras

Papers from arXiv.org

Abstract: The article's aim is to provide a solution to the Equity Premium Puzzle with a derived model. The derived model which depends on Consumption Capital Asset Pricing Model gives a solution to the puzzle with the values of coefficient of relative risk aversion around 4.40 by assuming the subjective time discount factors as 0.97, 0.98 and 0.99. These values are found compatible with empirical literature. Moreover, the risk-free asset and equity investors are determined as insufficient risk-loving investors in 1977, which can be considered a type of risk-averse behavior. The risk attitude determination also confirms the validity of the model. Hence, it can be stated that calculated values and risk behavior determination demonstrate the correctness of the derived model because test results are robust.

Date: 2025-08, Revised 2025-09
New Economics Papers: this item is included in nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2508.17996 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2508.17996

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().