A Reconsideration of the Equity Premium Puzzle

Miguel Cantillo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops an equilibrium asset pricing framework that allows for investor aggregation, and assumes a log-normally distributed aggregate endowment growth. This framework allows me to derive the equilibrium risk free rate, the expected market return, and expected returns for individual securities. To test how reasonable the results are, I use data of several developed economies from Campbell (2003, 2017) to find a median value of relative risk aversion of 1.57, and a time preference rate of 4.58%. The framework allows me to estimate a version of the CAPM and a multi-period pricing model.

Keywords: Asset Pricing; General Equilibrium; CAPM; Equity Premium Puzzle (search for similar items in EconPapers)
JEL-codes: D53 E21 G12 G13 G32 (search for similar items in EconPapers)
Date: 2017-05-24
New Economics Papers: this item is included in nep-dcm, nep-mac and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:79357

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