This paper evaluates the magnitude of the equity premium in the European financial markets of the last twenty years. We document a substantial decrease in its value, especially after the onset of Great Recession. A habit consumption model predicts a value for the equity premium much higher than observed in data. Conversely, a simple general equilibrium model in the spirit of Mehra and Prescott (1985) is now able to explain the premium without resorting to extremely high coefficients for risk aversion.

The end of the Equity Premium Puzzle? An analysis of the European Financial Markets

Cardullo, Gabriele
2022-01-01

Abstract

This paper evaluates the magnitude of the equity premium in the European financial markets of the last twenty years. We document a substantial decrease in its value, especially after the onset of Great Recession. A habit consumption model predicts a value for the equity premium much higher than observed in data. Conversely, a simple general equilibrium model in the spirit of Mehra and Prescott (1985) is now able to explain the premium without resorting to extremely high coefficients for risk aversion.
File in questo prodotto:
File Dimensione Formato  
The end of the equity premium puzzle.pdf

accesso chiuso

Tipologia: Documento in versione editoriale
Dimensione 402.21 kB
Formato Adobe PDF
402.21 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11567/1092513
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact