The Equity Premium Puzzle and the Riskfree Rate Puzzle
Philippe Weil
Working Papers from HAL
Abstract:
This paper studies the implications for general equilibrium asset pricing of a recently introduced class of Kreps-Porteus non-expected utility preferences, which is characterized by a constant intertemporal elasticity of substitution and a constant, but unrelated, coefficient of relative risk aversion. It is shown that the solution to the "equity premium puzzle" documented by Mehra and Prescott [1985] cannot be found, for plausibly calibrated parameter values, by simply separating risk aversion from intertemporal substitution. Rather, relaxing the parametric restriction on tastes implicit in the time-addictive expected utility specification and adopting Kreps-Porteus preferences in the direction of "more realism" is likely to add a "riskfree rate puzzle" to Mehra's and Prescott's "equity premium puzzle."
Date: 1989-01
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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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