Equity Premium in Serbia: A Different Kind of Puzzle?

Milos Bozovic
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Milos Bozovic: University of Belgrade, Serbia

from University of Primorska, Faculty of Management Koper

Abstract: This paper investigates macro-financial aspects of equity premium in Serbia. Using consumption-based equilibrium model and quarterly data on Serbian stocks, 3-month Treasury bills, inflation and aggregate consumption between 2007 and 2014, we show a prominent absence of the usual Equity Premium Puzzle, Correlation Puzzle and Risk-Free Rate Puzzle that are characteristic for developed markets, and report fairly reasonable lower bounds for the relative risk aversion coefficient. In addition, we also find plausible values of subjective discount factor. Regression estimates of a model with recession state variable in the utility function show a significant impact of both risk aversion and precautionary saving motives of investors. The presence of a structural break at the end of 2008 does not change the regression results qualitatively.

Keywords: equity premium; financial markets; consumption; puzzles (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:mgt:micp15:153-167

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