EQUITY-PREMIUM PUZZLE: EVIDENCE FROM BRAZILIAN DATA

Rubens Cysne

Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33rd Brazilian Economics Meeting] from ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics]

Abstract: This paper uses 1992:1-2004:2 quarterly data and two diferent methods (approximation under lognormality and calibration) to evaluate the existence of an equity- premium puzzle in Brazil. In contrast with some previous works in the Brazilian literature, I conclude that the model used by Mehra and Prescott (1985), either with additive or recursive preferences, is not able to satisfactorily rationalize the equity premium observed in the Brazilian data. The second contribution of the paper is calling the attention to the fact that the utility function calculated under the discrete-state approximation may not exist if the data (as it is the case with Brazilian time series) implies the existence of states in which high negative rates of consumption growth are attained with relatively high probability.

JEL-codes: E40 G12 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fin and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://www.anpec.org.br/encontro2005/artigos/A05A088.pdf

Related works:
Working Paper: Equity-premium puzzle: evidence from Brazilian data (2005)
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