The Equity Premium: Why is it a Puzzle?

Rajnish Mehra

No 9512, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This article takes a critical look at the equity premium puzzle the inability of standard intertemporal economic models to rationalize the statistics that have characterized U.S. financial markets over the past century. A summary of historical returns for the United States and other industrialized countries and an overview of the economic construct itself are provided. The intuition behind the discrepancy between model prediction and empirical data is explained. After detailing the research efforts to enhance the model's ability to replicate the empirical data, I argue that the proposed resolutions fail along crucial dimensions

JEL-codes: G10 G11 (search for similar items in EconPapers)
Date: 2003-02
New Economics Papers: this item is included in nep-cfn, nep-dge, nep-fmk and nep-rmg
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (113)

Published as Mehra, Rajnish & Prescott, Edward C., 2003. "The equity premium in retrospect," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 14, pages 889-938 Elsevier.
Published as Mehra, Rajnish. "The Equity Premium Puzzle: A Review." Foundations and Trends in Finance 2, 1 (2006): 1-81.

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