The Equity Premium: It's Still a Puzzle

Kocherlakota, N. R. (1995). The Equity Premium: It's Still a Puzzle: It's Still a Puzzle. Journal of Economic Literature.

Type

Journal article

Intellectual base

Primary research

Year

1995

DOI

10.21034/dp.102

Link

https://doi.org/10.21034/dp.102

Cited by

1 citation across 1 artifact.

Each citation links to the sentence it supports in the citing article.

Domain-specific

• Equity premium puzzle
  • Because consumption growth in the postwar US has been both low in volatility and weakly correlated with stock returns, the model requires implausibly high risk aversion — published figures run from roughly 18, which satisfies the equity-premium condition alone, up to about 55 for proposals that also match the low risk-free rate, against the commonly assumed range of 1–10 — to match the observed premium

    This sourceEstablishes the conventional bound of 10 on relative risk aversion and puts the coefficient that satisfies the equity-premium condition alone near 18; the upper end near 55 is Fischer Black's proposal as reported in Mehra and Prescott's retrospect below, not a calibration of this paper.

Verification

This reference passed the adversarial substantiation pipeline: it was checked to exist and to support the claim it is attached to. See how references were verified.

Registry ID ref:e1a238bf0e4c · see in the full table