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	Equity premium puzzle - Wikipedia, the free encyclopedia
		The equity premium puzzle refers to the phenomenon that observed average annual returns on stocks over the past century are higher, by approximately 6 percentage points, than returns on government bonds.
		The puzzle arises as the observed difference in returns implies an implausibly high level of risk aversion.
		The evaluation time period implied in their model by an equity premium of 6 percentage points and a 2x loss aversion multiplier (a general finding of loss aversion research) is approximately one year.
	en.wikipedia.org /wiki/Equity_premium_puzzle (576 words)

	Equity Premium Puzzle (Site not responding. Last check: 2007-10-14)
		The equity premium in the US is usually taken to be about 6 - 7%/year for periods going back over 100 years from the present.
		The article that introduced the term "Equity premium puzzle" was written by Mehra and Prescott in 1985.
		Since regulators usually insist that fund performance data be presented in terms of compound annual returns, it may come as a surprise to many investors that the equity premium is stated in terms of an arithmetic mean, that is the sum of the annual returns divided by the number of years.
	publish.uwo.ca /~jnuttall/equity.html (2054 words)

	Watson Wyatt Worldwide Published Articles
		This leads to equity mainly being held by older individuals who demand it less; therefore, the realised equity premium is high.
		The equity premium is a crucial factor in pension fund investment.
		The literature on the equity premium puzzle suggests that theoretical financial economics models have limited value in predicting the size of the equity premium.
	www.watsonwyatt.com /europe/news/articles/parender.asp?id=uk-026&page=1 (897 words)

	New Economist: Has Barro solved the equity premium puzzle?
		The seminal paper was by Rajnish Mehra and Edward C.Prescott in 1985: "The Equity Premium: A Puzzle" (PDF), published in the Journal of Monetary Economics.
		We also show that, to the extent that the equity premium is due to various kinds of capital market failure, it provides a rationale for public ownership of some business enterprises and for a rate of return on public investment close to the real bond rate.
		EQUITY PREMIUM CHATTER....Via Tyler Cowen, New Economist has an interesting roundup of reactions to a new paper by Robert Barro purporting to explain the equity premium puzzle.
	neweconomist.blogs.com /new_economist/2005/09/new_research_on.html#more (2365 words)

	4 Theoretical analysis – the equity premium puzzle - The Market Equity Risk Premium - Treasury Paper - The ...
		The problem, originally identified by Mehra and Prescott (1985) and termed the “equity premium puzzle” is that plausible values for the variables on the right side of the equation produce estimates of the equity risk premium of less than one percent.
		It remains to be seen whether the drastic modifications and a high equity premium, or the standard model and a low equity premium, will triumph in the end.
		Before the equity premium is dismissed, not only do researchers need to understand the observed phenomena, but they also need a plausible explanation as to why the future is likely to be any different from the past.
	www.treasury.govt.nz /merp/04.asp (825 words)

	Federal Reserve Bank of Minneapolis - The Region - The Vanishing Equity Premium (June 2001) (Site not responding. Last check: 2007-10-14)
		As they define it, the premium is the difference between stock yields and bond yields, where stock yields equal the sum of dividend yields (per share dividend as a fraction of the share price) and expected growth in dividends.
		For SandP stocks, for example, relative to long-term bonds, the average equity premium from 1926 to 1970 was 6.8 percentage points.
		A recent survey of 226 such professors found their equity premium forecasts to be quite high: an average one-year horizon forecast of 5.8 percentage points and an average five-year forecast of 6.7 points.
	woodrow.mpls.frb.fed.us /pubs/region/01-06/equity.cfm?js=0 (848 words)

	Stumbling and Mumbling: The equity premium puzzle
		The puzzle is that equities have done far better than they should over the long-run.
		The prospective equity risk premium is a great topic- loads of historic data, and contributions from some of the brainiest people around, yet no real fix on whether the future is or isn’t going to be like the past.
		On survivorship bias, I thought we’d now got enough data to say that a cap weighted world equity index would have generated an historic premium broadly similar to that properly calculated for the US alone (eg see the Dimson and Marsh LBS work- the non-survivors were mostly small).
	stumblingandmumbling.typepad.com /stumbling_and_mumbling/2005/02/the_equity_prem.html (1124 words)

	The Dead Parrot Society: The Equity Premium Puzzle
		The reduction in the assumed equity premium may have been motivated by persuasive criticism from people like Peter Diamond, who wrote in 2000 that the Social Security projections were inconsistent.
		All in all, I remain perplexed by the equity premium puzzle, but it is important to note that its importance to the debate is limited.
		What we do know is that the equity premium seems to exist in various guises in various countries, in various magnitudes.
	www.deadparrots.net /archives/social_security/0503the_equity_premium_puzzle.html (1872 words)

	Wilmott Forums - equity premium puzzle (Site not responding. Last check: 2007-10-14)
		Since you talk about the equity premium puzzle, i have some papers that more or less state that the equity premium is so high because it has a significant component that represents a liquidity premium for holding stocks.
		Also if you go to www.aimr.com and choose the Equity Risk Premium Forum in the middle of the page, there is a downloadable series of papers and discussions from people such as Martin Leibowitz and Jeremy Siegel and Bob Shiller from November of last year on this topic.
		I am not equity derivatives expert but the futures contract appears to be priced on the basis of Libor swap minus the anticipated divident yield.
	www.wilmott.com /messageview.cfm?catid=3&threadid=3236 (2382 words)

	CrossingWallStreet.com: The Equity Premium Puzzle (Site not responding. Last check: 2007-10-14)
		One of the great puzzles of finance is the “equity risk premium.” This refers to the fact that stocks have historically outperformed bonds.
		He thinks the equity premium puzzle is due to liquidity:
		His model illustrates that the equity premium is no more than compensation to equity holders for the adverse effects of illiquidity.
	www.crossingwallstreet.com /archives/2006/01/the_equity_prem.html (708 words)

	Anomalies: The Equity Premium Puzzle
		The equity premium is the difference in returns between equities and fixed income securities, such as Treasury bills.
		The puzzle refers to the fact that the premium has historically been very large--about 6 percent per year--too large to be easily explained by risk aversion.
		The authors document the evidence for the puzzle and find that is exists in many countries, over long time periods, and does not seem to be explained by survivorship bias.
	ideas.repec.org /a/aea/jecper/v11y1997i1p191-200.html (943 words)

	Economist's View: New Economist on Barro and the Equity Premium Puzzle
		New Economist on Barro and the Equity Premium Puzzle
		The seminal paper was by Rajnish Mehra and Edward C.Prescott's in 1985: "The Equity Premium: A Puzzle" (PDF) in the Journal of Monetary Economics.
		Barro's paper builds upon Thomas Rietz 1988 JME article "The equity premium: A solution", which argued that the premium could be explained by infrequent but very large falls in consumption (i.e.
	economistsview.typepad.com /economistsview/2005/09/new_economist_o.html (1596 words)

	Wilmott Forums - Equity Risk Premium, dividend puzzle and duration (Site not responding. Last check: 2007-10-14)
		To say that the risk premium on the growth stock is (or should be) higher is the same as saying that the company's yield curve (zero coupon curve, actually) is positively sloped.
		As you know, the question here is that the historically computed equity premium is far too large in magnitude to be explained by economic principles (as far as I'm aware).
		The subject of equity valuation is indeed a hairy one, but, in my opinion, it (the long-term aspect of it, especially) is less complicated as it is made out to be.
	www.wilmott.com /messageview.cfm?catid=4&threadid=1953 (3182 words)

	Behavioral finance - KnowledgeIsFun.com (Site not responding. Last check: 2007-10-14)
		Applying a version of prospect theory, Benartzi and Thaler (1995) claim to have solved the equity premium puzzle, something conventional finance models have been unable to do.
		However, a distinction should be noted between individual biases and social biases; the former can be averaged out by the market, while the other can create feedback loops that drive the market further and further from the equilibrium of the "fair price".
		A specific example of this criticism is found in some attempted explanations of the equity premium puzzle.
	www.knowledgeisfun.com /B/Be/Behavioral-finance.php (1626 words)

	ECO 7206 - Advanced Macroeconomics for Ph.D. (Site not responding. Last check: 2007-10-14)
		Mehra and Prescott (1985) The Equity Premium: A Puzzle.
		Simon Grant and John Quiggin (2001) The Risk Premium for Equity: Explanations and Implications.
		Jeremy J. Seigel and Richard H. Thaler (1997) Anomalies: The Equity Premium Puzzle.
	www.bus.ucf.edu /omikhail/Eco7206/F2002/Eco-7205-f2002.htm (1078 words)

	Amazon.com: Habit formation as a resolution to the equity premium puzzle: what is in the data, what is not. : An ... (Site not responding. Last check: 2007-10-14)
		Amazon.com: Habit formation as a resolution to the equity premium puzzle: what is in the data, what is not.
		Habit formation as a resolution to the equity premium puzzle: what is in the data, what is not.
		In addition, the equity problem is not resolved by the assumption on habit formation because of the small degree of correlation between consumption and the premium.
	www.amazon.com /exec/obidos/tg/detail/-/B00092SD9Y?v=glance (363 words)

	A Further Equity Premium Puzzle from Ohio State University White Papers at ZDNet UK (Site not responding. Last check: 2007-10-14)
		The present note adds the further puzzle that if the mean rate of growth of consumption is not known with perfect certainty in such a model, both stocks and real perpetuities have an infinite price in terms of consumption goods.
		When maturity-specific claims on real output are introduced, the equity premium is seen to increase without bound at the most distant horizons.
		These in turn dominate asset pricing, so that the equity premium on claims on all future output is indeed infinite.
	whitepapers.zdnet.co.uk /0,39025945,60017300p-39000666q,00.htm (142 words)

	SSRN-On the Relation Between Credit Spread Puzzles and the Equity Premium Puzzle by Long Chen, Pierre Collin-Dufresne, ...
		We ask whether the equity premium puzzle and the credit spread puzzle - both are found to be too high for the risk they entail - can be simultaneously explained by theoretical models.
		Such a model well explains the credit spread puzzle, and provides a possible explanation on why macroeconomic factors (e.g., Fama-French factors) can explain the common variation of credit spreads even after controlling for leverage, volatility and term structure factors.
		We conclude that both the equity premium and the level as well as dynamics of credit spreads can be explained simultaneously by the same pricing kernels, with a time-varying equity premium as an essential component.
	papers.ssrn.com /sol3/papers.cfm?abstract_id=687473 (481 words)

	Catallarchy » Equity Premium Puzzle
		I believe that the answer is probably yes, and that it involves a fundamental difference in the characteristics of stocks and bonds.
		The cash flows of equities are not fixed and require you to make many subjective determinations.
		This is a different take to the original question, but I think that there is a “difficulty of valuation premium” built in to the risk premium.
	catallarchy.net /blog/archives/2005/09/19/equity-premium-puzzle (1264 words)

	The equity premium puzzle and decreasing relative risk aversion
		The equity premium puzzle and decreasing relative risk aversion
		Roche, Maurice (2005) The equity premium puzzle and decreasing relative risk aversion.
		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.
	eprints.may.ie /archive/00000207 (84 words)

	Equity premium puzzle - Definition of word from Investor Dictionary - Define meaning of Equity premium puzzle
		Equity premium puzzle - Definition of word from Investor Dictionary - Define meaning of Equity premium puzzle
		To quantify the level of risk aversion implied, investors would have to be indifferent betwen a bet with a 50% chance of $50,000 or $100,000 and a certain payoff of $51,209.
		Applying prospect theory they contend that myopic loss aversion provides a plausable solution to the puzzle.
	www.investordictionary.com /definition/equity+premium+puzzle.aspx (384 words)

	S-WoPEc: Social Security and the Equity Premium Puzzle
		Abstract: This paper shows that social security may be an important factor in explaining the equity premium puzzle.
		Social security reduces the bond demand of the middle-aged, thereby restricting the possibilities of the young to finance their equity purchases.
		The efect on the equity premium is substantial.
	swopec.hhs.se /iiessp/abs/iiessp0729.htm (213 words)

	S-WoPEc: Myopic Loss Aversion, the Equity Premium Puzzle, and GARCH
		Abstract: This paper concerns the distributional assumptions made on stock returns in the myopic loss aversion (MLA) proposed explanation to the equity premium puzzle.
		Using Swedish data, our estimation method produces an overall larger evaluation period than the one originally obtained by Benartzi and Thaler, e.g., over the sample period July 1961 through December 2003 the evaluation period increases from 12 to 17.
		This shows that MLA indeed can explain a large equity premium but, also, that the model is sensitive to the distributional assumption made on stock returns.
	swopec.hhs.se /uunewp/abs/uunewp2005_011.htm (231 words)

	EconPapers: Occupational Choice and the Private Equity Premium Puzzle
		In this setting, becoming an entrepreneur is equivalent to investing in non-traded private equity capital subject to transaction costs.
		We model the return on private equity as the sum of two components, the individual ability of the entrepreneur and idiosyncratic business risk.
		Using numerical techniques we find that the model generates the observed return structure for private equity using standard CRRA-preferences and fully rational expectations.
	econpapers.repec.org /paper/ihsihsesp/122.htm (271 words)

	EconPapers: Discounting The Equity Premium Puzzle
		Abstract: 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.
		Keywords: Equity premium puzzle; stochastic dominance; nonparametric; subsampling.
	econpapers.repec.org /paper/ecmausm04/331.htm (205 words)

	Professor David Laibson's Papers on the Web
		Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance (with James J. Choi, Brigitte C. Madrian, and Andrew Metrick,) in Tax Policy and the Economy 16, 2002, pp.
		The 6D Bias and the Equity Premium Puzzle (with Xavier Gabaix).Benjamin Bernanke and Kenneth Rogoff ed., NBER Macroeconomics Annual, vol.16, 2002, p.
		A Debt Puzzle (with Andrea Repetto and Jeremy Tobacman) in eds.
	www.economics.harvard.edu /faculty/laibson/papers.html (645 words)

	SSRN-Can Survival Bias Explain the 'Equity Premium Puzzle'? by Haitao Li, Yuewu Xu
		We also demonstrate that other survival models are unlikely to succeed either, since to constantly generate high survival bias, the ex ante probability of long-term market survival has to be extremely small which contradicts the history of the world financial markets.
		Given that no theory in the existing literature predicts high survival bias in the U.S. equity premium, the current concerns for such bias are probably without grounds.
		Li, Haitao and Xu, Yuewu, "Can Survival Bias Explain the 'Equity Premium Puzzle'?" (March 1999).
	papers.ssrn.com /sol3/papers.cfm?abstract_id=163285 (240 words)

	Untitled
		This book, in addition to the econometric applications (where econometric issues become indistinguishable from pure theory), fills such gap.
		The authors are remarkably open minded, perhaps a sign of the evolution of finance in recent times-the result of the equity premium puzzle and the crack in the rationality hypothesis.
		One can find included discussions of such adventurous topics as a neural network approach to option pricing and a mention of technical analysis that is, remarkably, not condescending.
	www.fooledbyrandomness.com /books.htm (1482 words)

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