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A new methodology for studying the equity premium

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  • Elie Appelbaum

    (Department of Economics, York University, Toronto, Canada)

  • Parantap Basu

Abstract

This paper provides a new framework for the derivation and estimation of consumption and equity premium functions. Applying duality in a dynamic context, we show that equity premium and consumption functions can be easily obtained from the indirect utility function. Our new framework, therefore, does not require explicit specification of underlying consumer preferences. Using aggregate US data (1929–2000) we estimate the consumption and equity premium functions using a nonparametric technique. We find that the model does well in explaining the observed smooth consumption patterns and does reasonably well in explaining the high mean and volatility of equity premia.

Suggested Citation

  • Elie Appelbaum & Parantap Basu, 2010. "A new methodology for studying the equity premium," Working Papers 2010_3, York University, Department of Economics.
    • Handle: RePEc:yca:wpaper:2010_3
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    Cited by:

    1. Elie Appelbaum & Aman Ullah, 1997. "Estimation Of Moments And Production Decisions Under Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 631-637, November.
    2. Appelbaum, Elie, 2021. "Asset Demand: A Simple Dual Approach," MPRA Paper 113085, University Library of Munich, Germany.
    3. Elie Appelbaum, 2000. "Estimating the firm's demand and supply functions under uncertainty without expected utility," Working Papers 2000_5, York University, Department of Economics.

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