A New Perspective on the Equity Premium Puzzle
10 Pages Posted: 31 Jan 2017
Date Written: January 30, 2017
The general conclusion of a very large literature on the equity premium puzzle is that the simplest version of the consumption-based asset pricing model (C-CAPM) with time-additive, power utility is inconsistent with the data. I show that this conclusion is premature and the simplest version can account for high equity premium and other puzzles if decision-maker reliance on informative starting points is incorporated in the model.
Keywords: Equity-Premium Puzzle, Anchoring-and-Adjustment
JEL Classification: G10, G11, D0, G02
Suggested Citation: Suggested Citation