The Equity Premium Puzzle and the Riskfree Rate Puzzle / Philippe Weil.

Format:

Book

Author/Creator:

Weil, Philippe.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2829.

NBER working paper series no. w2829

Language:

English

Subjects (All):

Entrepreneurship.

Entrepreneurship--Periodicals.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Cambridge, Massachusetts : National Bureau of Economic Research, 1989.

Summary:

This paper studies the implications for general equilibrium asset pricing of a recently introduced class of Kreps-Porteus non-expected utility preferences, which is characterized by a constant intertemporal elasticity of substitution and a constant, but unrelated, coefficient of relative risk aversion. It is shown that the solution to the "equity premium puzzle" documented by Mehra and Prescott [19851 cannot be found, for plausibly calibrated parameter values, by simply separating risk aversion from intertemporal substitution. Rather, relaxing the parametric restriction on tastes implicit in the time-addictive expected utility specification and adopting Kreps-Porteus preferences in the direction of "more realism" is likely to add a "riskfree rate puzzle" to Mehra's and Prescott's "equity premium puzzle."

Notes:

Print version record

1989.