The end of the Equity Premium Puzzle? An analysis of the European Financial Markets

Damonte Marco and Gabriele Cardullo

Journal of Finance and Investment Analysis, 2022, vol. 11, issue 2, 2

Abstract: This paper evaluates the magnitude of the equity premium in the European financial markets of the last twenty years. We document a substantial decrease in its value, especially after the onset of Great Recession. A habit consumption model predicts a value for the equity premium much higher than observed in data. Conversely, a simple general equilibrium model in the spirit of Mehra and Prescott (1985) is now able to explain the premium without resorting to extremely high coefficients for risk aversion. Â JEL classification numbers: G11, G12, G14.

Keywords: Equity premium puzzle; Habit formation: Stock returns. (search for similar items in EconPapers)
Date: 2022
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