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The equity premium puzzle and decreasing relative risk aversion

  • M. J. Roche

    (Economics, NUI Maynooth, Ireland)

Agents are assumed to have a power risk aversion utility function in an otherwise standard asset pricing model. These preferences are shown to be capable of eliminating one version of the equity premium and risk free rate puzzles when they display decreasing relative risk aversion.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1510205.

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Length: 10 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:may:mayecw:n1510205
Contact details of provider: Postal: Maynooth, Co. Kildare
Phone: 353-1-7083728
Fax: 353-1-7083934
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  1. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
  2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  3. Mette Wik & Tewodros Aragie Kebede & Olvar Bergland & Stein Holden, 2004. "On the measurement of risk aversion from experimental data," Applied Economics, Taylor & Francis Journals, vol. 36(21), pages 2443-2451.
  4. Joseph Eisenhauer & Luigi Ventura, 2003. "Survey measures of risk aversion and prudence," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1477-1484.
  5. Stuart Hyde & Mohamed Sherif, 2005. "Don't break the habit: structural stability tests of consumption asset pricing models in the UK," Applied Economics Letters, Taylor & Francis Journals, vol. 12(5), pages 289-296.
  6. Rajnish Mehra & Edward C. Prescott, 2003. "The Equity Premium in Retrospect," NBER Working Papers 9525, National Bureau of Economic Research, Inc.
  7. Atsushi Maki & Tadashi Sonoda, 2002. "A solution to the equity premium and riskfree rate puzzles: an empirical investigation using Japanese data," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 601-612.
  8. Meyer, Donald J. & Meyer, Jack, 2005. "Risk preferences in multi-period consumption models, the equity premium puzzle, and habit formation utility," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1497-1515, November.
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