Explaining the Equity Risk Premium

45 Pages Posted: 24 Aug 2005

See all articles by Laurian Lungu

Laurian Lungu

Cardiff Business School

Patrick Minford

Cardiff University Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005

Abstract

We develop a simple overlapping generations model in which the young have a choice in investing in equities and index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such a long-term investment predicts an equity premium that matches historical values.

Keywords: Equity premium puzzle, risk premium

JEL Classification: G12

Suggested Citation

Lungu, Laurian and Minford, Patrick, Explaining the Equity Risk Premium (April 2005). CEPR Discussion Paper No. 5017, Available at SSRN: https://ssrn.com/abstract=772767

Laurian Lungu

Cardiff Business School ( email )

Aberconway Building
Cardiff CF10 3EU
United Kingdom
+44 29 2087 5129 (Phone)
+44 29 2087 4419 (Fax)

HOME PAGE: http://www.cf.ac.uk/carbs/econ/lungul/

Patrick Minford (Contact Author)

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5728 (Phone)
+44 29 2087 4419 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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