The Equity Premium Puzzle and the Riskfree Rate Puzzle

Philippe Weil

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Abstract: This paper studies the implications for general equilibrium asset pricing of a class of Kreps-Porteus nonexpected utility preferences characterized by a constant intertemporal elasticity of substitution and a constant, but unrelated, coefficient of relative risk aversion. It is shown that relaxing the parametric restriction on tastes imposed by the time-additive expected utility specification does not suffice to solve the Mehra-Prescott (1985) equity premium puzzle. An additional puzzle — the risk-free rate puzzle — emerges instead: why is the risk-free rate so low if agents are so averse to intertemporal substitution?

Date: 1989-11
Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03393298
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Published in ICFAI Journal of Monetary Economics, 1989, 24 (3), pp.401 - 421. ⟨10.1016/0304-3932(89)90028-7⟩

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Related works:
Working Paper: The Equity Premium Puzzle and the Risk-Free Rate Puzzle (1997)
Journal Article: The equity premium puzzle and the risk-free rate puzzle (1989)
Working Paper: The Equity Premium Puzzle and the Riskfree Rate Puzzle (1989)
Working Paper: The Equity Premium Puzzle and the Riskfree Rate Puzzle (1989)
Working Paper: The Equity Premium Puzzle and the Riskfree Rate Puzzle (1989)
Working Paper: The Equity Premium Puzzle and the Riskfree Rate Puzzle (1989)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03393298

DOI: 10.1016/0304-3932(89)90028-7

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