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Futures market approach to understanding equity premium puzzle

Author

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  • Kim, Minseong

Abstract

In this paper, another factor that affects equity risk premium is derived from a simple classical monetary model, which basically adds back labor-leisure to a simple consumption-only consumption-based asset pricing model. If every present/future good is traded at time $t=0$, just as in traditional Arrow-Debreu general equilibrium models and understanding bonds as essentially trading labor with future goods, it is inevitable that risk-free bonds have lower interest rate than ideal risk-free bonds of classical monetary models.

Suggested Citation

  • Kim, Minseong, 2016. "Futures market approach to understanding equity premium puzzle," MPRA Paper 70310, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70310
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    File URL: https://mpra.ub.uni-muenchen.de/70310/1/MPRA_paper_70310.pdf
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    References listed on IDEAS

    as
    1. Christopher J. Waller, 2015. "Microfoundations of Money: Why They Matter," Review, Federal Reserve Bank of St. Louis, vol. 97(4), pages 289-301.
    2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
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    Cited by:

    1. Cassou, Steven P. & Vázquez, Jesús, 2025. "Preference for consumption predictability and the equity premium puzzle," International Review of Economics & Finance, Elsevier, vol. 103(C).

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    More about this item

    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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