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

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  • Damonte Marco
  • Cardullo Gabriele

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. Â JEL classification numbers: G11, G12, G14.

Suggested Citation

  • Damonte Marco & Cardullo Gabriele, 2022. "The end of the Equity Premium Puzzle? An analysis of the European Financial Markets," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 11(2), pages 1-2.
    • Handle: RePEc:spt:fininv:v:11:y:2022:i:2:f:11_2_2
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    References listed on IDEAS

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    More about this item

    Keywords

    Equity premium puzzle; Habit formation: Stock returns.;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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