The Equity Premium Puzzle
THE NEW PALGRAVE DICTIONARY OF MONEY AND FINANCE, pp. 771-773, Macmillan, 1992
4 Pages Posted: 7 Mar 2012 Last revised: 6 Nov 2012
Date Written: 1992
The phrase 'equity premium puzzle' refers to the apparent inability of the standard asset-pricing paradigm to explain the average size of the equity premium in US data. In order to describe this failure it is useful to outline the essential features of the basic intertemporal equilibrium model which has been used to price assets. We then consider various extensions of that model, as well as some econometric issues, in the context of possible explanations for the 'puzzle'.
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