Equity-premium puzzle: evidence from Brazilian data

Rubens Cysne

No 586, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: This paper uses 1992:1-2004:2 quarterly data and two di§erent 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 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.

Date: 2005-04-01
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: EQUITY-PREMIUM PUZZLE: EVIDENCE FROM BRAZILIAN DATA (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:586

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