Munich Personal RePEc Archive

Futures market approach to understanding equity premium puzzle

Kim, Minseong (2016): Futures market approach to understanding equity premium puzzle.

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In this paper, another factor that affects equity risk premium is derived from a simple classical monetary model, which basically adds back labor-leisure to a simple consumption-only consumption-based asset pricing model. If every present/future good is traded at time $t=0$, just as in traditional Arrow-Debreu general equilibrium models and understanding bonds as essentially trading labor with future goods, it is inevitable that risk-free bonds have lower interest rate than ideal risk-free bonds of classical monetary models.

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