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Explaining The Equity Risk Premium

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Author Info
Lungu, Laurian
Minford, Patrick

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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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5017.

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Date of creation: Apr 2005
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Handle: RePEc:cpr:ceprdp:5017

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Keywords: equity premium puzzle risk premium

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G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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