The Equity Premium in Retrospect
Arizona State University (ASU) - W.P Carey School of Business, Department of Economics; National Bureau of Economic Research (NBER)
Edward C. Prescott
Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)
NBER Working Paper No. w9525
This article takes a critical look at the literature on equity premium puzzle - the inability of standard intertemporal economic models to rationalize the statistics that have characterized U.S. financial markets over the past century. A summary of historical returns for the United States and other industrialized countries and an overview of the economic construct itself are provided. The intuition behind the discrepancy between model prediction and empirical data is explained and the research efforts to enhance the model's ability to replicate the empirical data are summarized.
Number of Pages in PDF File: 78
Date posted: March 4, 2003