A puzzle of excessive equity risk premium and the case of Poland

Pawel Kliber ()

"e-Finanse", 2016, vol. 12, issue 1, 1-11

Abstract: The article presents a historical review of the literature related to the empirical problem of excessive risk premium. The risk premium (the diff erence between the return on equiti es and risk-free rate) observed in fi nancial markets cannot be reconciled with theoretical models of fi nancial markets – it is too high (“excessive”). We present the original model from the seminal work of Mehra and Prescott (1985), where this problem has been signaled. The arti cle gives an overview of the main trends in the literature concerning this problem, of the proposed solutions and of the extension to the model. Finally, we consider the problem in the Polish context, estimating the original Mehra-Prescott model using data from the Polish fi nancial market.

Keywords: risk premium; Mehra-Prescott model; risk averse; financial markets; general equilibrium (search for similar items in EconPapers)
JEL-codes: B26 D53 G10 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:rze:efinan:v:12:y:2016:i:1:p:1-11

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