Logo
Munich Personal RePEc Archive

Equity Premium in Efficient Markets

Kausik, B.N. (2023): Equity Premium in Efficient Markets.

Warning
There is a more recent version of this item available.
[thumbnail of MPRA_paper_119278.pdf]
Preview
PDF
MPRA_paper_119278.pdf

Download (252kB) | Preview

Abstract

Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient markets the utility of money is polymorphic, with risk aversion dependent on the information available in each context, i.e. the discount on each future cash flow depends on all information available on that cash flow. Specifically, we prove that in efficient markets, informed investors maximize return on volatility by being risk-neutral with riskless bonds, and risk-averse with equities, thereby resolving the puzzle. We validate our results on historical data with surprising consistency.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.