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The Equity Premium in Retrospect

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Author Info
Rajnish Mehra
Edward C. Prescott

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Abstract

This article takes a critical look at the literature on equity premium puzzle - the inability of standard intertemporal economic models to rationalize the statistics that have characterized U.S. financial markets over the past century. A summary of historical returns for the United States and other industrialized countries and an overview of the economic construct itself are provided. The intuition behind the discrepancy between model prediction and empirical data is explained and the research efforts to enhance the model's ability to replicate the empirical data are summarized.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9525.

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Date of creation: Mar 2003
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Handle: RePEc:nbr:nberwo:9525

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment

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