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Myopic loss aversion, bond returns and the equity premium puzzle

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  • Philip Jagd
  • Jakob Madsen

Abstract

In an influential paper Bernatzi and Thaler (1995) (B&T) show that Myopic Loss Aversion (MLA) can explain the equity premium in the US over the period 1926 to 1990. However, bond returns, in their simulations, are based on coupons only. Allowing for capital gains on bonds in the simulations yields results that are somewhat different from those obtained by B&T. Furthermore, the simulations reveal another asset market puzzle related to the demand for bonds of long duration.

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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 19 (2009)
Issue (Month): 17 ()
Pages: 1383-1390

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Handle: RePEc:taf:apfiec:v:19:y:2009:i:17:p:1383-1390

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  1. Marco Taboga, 2004. "The equity premium in the long-run," Applied Financial Economics, Taylor & Francis Journals, vol. 14(9), pages 645-650.
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