Li, Jinlu (2010): Some solutions to the equity premium and volatility puzzles.
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In this paper, I adopt an economic equilibrium model utilizing the framework introduced by Mehra and Prescott (1985) when they presented the equity premium puzzle. This model, in the long run and with respect to stationary probabilities, produces results that match the sample values derived from the U.S. economy between 1889 and 1978 as illustrated by the studies performed by Grossman and Shiller (1981), which includes the expected average, standard deviation, and first-order serial correlation of the growth rate of per capita real consumption and the expected returns and standard deviation of equity, risk-free security, and risk premium for equity. Therefore, this model solves the equity premium and volatility puzzles. I also explore the reasons why the equity premium puzzle was caused.
|Item Type:||MPRA Paper|
|Original Title:||Some solutions to the equity premium and volatility puzzles|
|Keywords:||The constant relative risk aversion class utility function; risk premium; time discount factor; parameters defining preferences; parameters defining technologies; the equity premium and volatility puzzles.|
|Subjects:||C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General
E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
|Depositing User:||Jinlu Li|
|Date Deposited:||19. Nov 2010 20:40|
|Last Modified:||15. Feb 2013 19:29|
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