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Discounting The Equity Premium Puzzle

  • Vance Martin
  • G.C. Lim
  • Esfandiar Maasoumi

This paper applies recent tests of stochastic dominance of several orders proposed by Linton, Maasoumi and Whang (2003) to reexamine the equity premium puzzle. An advantage of this nonparametric framework is that it provides a means to assess whether the existence of a premium is due to an incorrect choice of either the utility function or the underlying returns distribution. The approach is applied to a range of data sets including the S&P500

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Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 331.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:331
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  1. Ellen R. McGrattan & Edward C. Prescott, 2001. "Taxes, regulations, and asset prices," Working Papers 610, Federal Reserve Bank of Minneapolis.
  2. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
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  4. Kocherlakota, N., 1995. "The Equity Premium: It's Still a Puzzle," Working Papers 95-05, University of Iowa, Department of Economics.
  5. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  6. Rajnish Mehra & Edward C. Prescott, 2003. "The Equity Premium in Retrospect," NBER Working Papers 9525, National Bureau of Economic Research, Inc.
  7. Linton, Oliver & Maasoumi, Esfandiar & Whang, Yoon-Jae, 2003. "Consistent Testing for Stochastic Dominance under General Sampling Schemes," SFB 373 Discussion Papers 2003,31, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  8. Campbell, John, 1993. "Intertemporal Asset Pricing Without Consumption Data," Scholarly Articles 3221491, Harvard University Department of Economics.
  9. Philippe Weil, 1992. "Equilibrium Asset Prices With Undiversifiable Labor Income Risk," NBER Working Papers 3975, National Bureau of Economic Research, Inc.
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  12. repec:dgr:kubcen:200189 is not listed on IDEAS
  13. Grossman, S J & Melino, Angelo & Shiller, Robert J, 1987. "Estimating the Continuous-Time Consumption-Based Asset-Pricing Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(3), pages 315-27, July.
  14. Simon Grant & John Quiggin, 2003. "Public Investment and the Risk Premium for Equity," Economica, London School of Economics and Political Science, vol. 70(277), pages 1-18, February.
  15. John Y. Campbell, 2002. "Consumption-Based Asset Pricing," Harvard Institute of Economic Research Working Papers 1974, Harvard - Institute of Economic Research.
  16. Mehra, Rajnish & Prescott, Edward C., 1988. "The equity risk premium: A solution?," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 133-136, July.
  17. Aiyagari, S. Rao & Gertler, Mark, 1991. "Asset returns with transactions costs and uninsured individual risk," Journal of Monetary Economics, Elsevier, vol. 27(3), pages 311-331, June.
  18. Heaton, John & Lucas, Deborah, 1995. "The importance of investor heterogeneity and financial market imperfections for the behavior of asset prices," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 1-32, June.
  19. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
  20. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  21. Campbell R. Harvey & Akhtar Siddique, 2000. "Conditional Skewness in Asset Pricing Tests," Journal of Finance, American Finance Association, vol. 55(3), pages 1263-1295, 06.
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