78 Pages Posted: 4 Mar 2003
Date Written: March 2003
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.
Suggested Citation: Suggested Citation
Mehra, Rajnish and Prescott, Edward C., The Equity Premium in Retrospect (March 2003). NBER Working Paper No. w9525. Available at SSRN: https://ssrn.com/abstract=385025
By Andrew Abel