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The Equity Premium Puzzle: Australia and the United States in Comparative Perspective

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Abstract

The equity risk premium puzzle has received regular attention by economists since it was first invoked by Mehra and Prescott (1985) twenty years ago. In a recent paper, they revisit the question and reject many of the explanations offered but we are left with no clear alternative account. The current paper seeks to do two things. We provide matching historical evidence of the equity premium for Australia and compare the results for the two nations. Resulting from this, we argue that a closer understanding of phases of economic history helps to explain the puzzle.

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File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012238.pdf
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Bibliographic Info

Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp06-25.

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Length: 11 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:uow:depec1:wp06-25

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Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
Phone: +612 4221-3659
Fax: +612 4221-3725
Web page: http://business.uow.edu.au/econ/index.html
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  1. Mehra, Rajnish & Prescott, Edward C., 2003. "The equity premium in retrospect," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 14, pages 889-938 Elsevier.
  2. S. Grossman & R. Shiller, . "The Determinants of the Variability of Stock Market Price," Rodney L. White Center for Financial Research Working Papers 18-80, Wharton School Rodney L. White Center for Financial Research.
  3. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  4. Narayana R. Kocherlakota, 1995. "The equity premium: it's still a puzzle," Discussion Paper / Institute for Empirical Macroeconomics 102, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Casper van Ewijk & Henri L.F. de Groot & Coos Santing, 2010. "A Meta-Analysis of the Equity Premium," Tinbergen Institute Discussion Papers 10-078/3, Tinbergen Institute.

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