A test of the intertemporal asset pricing model

Rajnish Mehra and Edward Prescott

No 81, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Restrictions that general equilibrium theory place upon average returns are found to be strongly violated by the U.S. data in the 1889?1978 period. This result is robust to model specification and measurement problems. We conclude that equilibrium models which are not Arrow-Debreu economies are needed to rationalize the large average equity premium that prevailed during the last 90 years.

Date: 1982
New Economics Papers: this item is included in nep-fmk
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Published in Journal of Monetary Economics (Vol. 15, n.2, March 1985, pp.145-161)

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