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Empirical Evidence for the New Definitions in Financial Markets and Equity Premium Puzzle

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  • Aras, Atilla

Abstract

This study presents empirical evidence to support the validity of new definitions in financial markets. The author develops a new method to determine investors' risk attitudes in financial markets. The risk attitudes of investors in US financial markets from 1889-1978 are analyzed and the results indicate that equity investors who invested in the composite S&P 500 index were risk-averse in 1977. Conversely, risk-free asset investors who invested in US Treasury bills were found to exhibit not enough risk-loving behavior, which can be considered a type of risk-averse behavior. These findings suggest that the new definitions in financial markets accurately reflect the behavior of investors and should be considered in investment strategies.

Suggested Citation

  • Aras, Atilla, 2023. "Empirical Evidence for the New Definitions in Financial Markets and Equity Premium Puzzle," OSF Preprints 2nw5g_v1, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:2nw5g_v1
    DOI: 10.31219/osf.io/2nw5g_v1
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    References listed on IDEAS

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    1. Raj Chetty, 2006. "A New Method of Estimating Risk Aversion," American Economic Review, American Economic Association, vol. 96(5), pages 1821-1834, December.
    2. Andrés J. Picazo‐Tadeo & Alan Wall, 2011. "Production risk, risk aversion and the determination of risk attitudes among Spanish rice producers," Agricultural Economics, International Association of Agricultural Economists, vol. 42(4), pages 451-464, July.
    3. Aras, Atilla, 2023. "Proofs for the New Definitions in Financial Markets," OSF Preprints yac7z, Center for Open Science.
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