A new methodology for studying the equity premium

Elie Appelbaum and Parantap Basu

Annals of Operations Research, 2010, vol. 176, issue 1, 109-126

Abstract: This paper provides a new framework for the derivation and estimation of consumption and equity premium functions. Applying duality in a dynamic context, we show that equity premium and consumption functions can be easily obtained from the indirect utility function. Our new framework, therefore, does not require explicit specification of underlying consumer preferences. Using aggregate US data (1929–2000) we estimate the consumption and equity premium functions using a nonparametric technique. We find that the model does well in explaining the observed smooth consumption patterns and does reasonably well in explaining the high mean and volatility of equity premia. Copyright Springer Science+Business Media, LLC 2010

Keywords: Consumption function; Equity premium; Moments (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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Working Paper: A new methodology for studying the equity premium (2010)
Working Paper: A New Methodology For Studying The Equity Premium (2004)
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DOI: 10.1007/s10479-008-0484-1

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