The Equity Premium Puzzle: Defining a Robust Risk Aversion Coefficient

2011 ◽  
Author(s):  
Fred Viole ◽  
David N. Nawrocki
Keyword(s):  
Risk Aversion ◽  
Equity Premium ◽  
Equity Premium Puzzle ◽  
Risk Aversion Coefficient ◽  
Premium Puzzle

scholarly journals Solution to the Equity Premium Puzzle

2021 ◽  
Author(s):  
Atilla Aras
Keyword(s):  
Relative Risk ◽  
Risk Aversion ◽  
Risk Behavior ◽  
Empirical Studies ◽  
Equity Premium ◽  
Subjective Time ◽  
Relative Risk Aversion ◽  
Equity Premium Puzzle ◽  
Time Discount ◽  
Premium Puzzle

This study provides a solution of the equity premium puzzle. Questioning the validity of the Arrow-Pratt measure of relative risk aversion for detecting the risk behavior of investors, a new tool in the form of the sufficiency factor of the model was developed to analyze the risk behavior of investors. The calculations of this newly tested model show that the value of the coefficient of relative risk aversion is 1.033526 by assuming the value of the subjective time discount factor as 0.99. Since these values are compatible with the existing empirical studies, they confirm the validity of the newly derived model that provides a solution to the equity premium puzzle.

The Uncertainty Premium in an Ambiguous Economy

2011 ◽  
Vol 01 (02) ◽  
pp. 323-354 ◽  
Author(s):  
Yehuda Izhakian ◽  
Simon Benninga
Keyword(s):  
Risk Aversion ◽  
Risk Premium ◽  
Equity Premium ◽  
Equity Premium Puzzle ◽  
Smooth Model ◽  
Increasing Risk ◽  
Premium Puzzle ◽  
Additional Explanation

The uncertainty premium is the premium that is derived from not knowing the sure outcome (risk premium) and from not knowing the precise odds of outcomes (ambiguity premium). We generalize Pratt's risk premium to uncertainty premium based on Klibanoff et al.'s (2005) smooth model of ambiguity. We show that the uncertainty premium can decrease with an increase in decision maker's risk aversion. This happens because increasing risk aversion always results in a lower ambiguity premium. The positive ambiguity premium may provide an additional explanation to the equity premium puzzle.

Age‐Dependent Increasing Risk Aversion and the Equity Premium Puzzle

2019 ◽  
Vol 54 (2) ◽  
pp. 377-412 ◽  
Author(s):  
Amadeu DaSilva ◽  
Mira Farka ◽  
Christos Giannikos
Keyword(s):  
Risk Aversion ◽  
Equity Premium ◽  
Equity Premium Puzzle ◽  
Age Dependent ◽  
Increasing Risk ◽  
Premium Puzzle

scholarly journals The Equity Premium Puzzle in Nepal

2013 ◽  
Vol 3 (1) ◽  
pp. 28-42
Author(s):  
Biwesh Neupane
Keyword(s):  
Risk Aversion ◽  
Risk Premium ◽  
Equity Premium ◽  
Developed Countries ◽  
Surprising Result ◽  
Equity Premium Puzzle ◽  
Time Period ◽  
Real Risk ◽  
Common Stocks ◽  
Premium Puzzle

The study concentrates on one of the most famous puzzles in asset pricing, the equity premium puzzle, which was first identified by Mehra and Prescott (1985). The paper examines the existence and extent of the equity premium puzzle in Nepalese market. The equity premium puzzle refers to the fact that common stocks have offered a very high real risk premium over that of risk-free bills, which leads to unexplainable high risk-aversion of the investors. The study considers the time period of 1995/96 to 2007/08. The result shows that the equity premium exists in Nepal even though the advent of the premium is low compared to other developed countries. This could be a surprising result given the Nepalese context. It was found that the risk aversion of Nepalese investors is greater than 10 (the upeer boundary set by Mehra and Prescott, 1985) which do not fit the conventional financial theories resulting in unexplainable equity premium puzzle. DOI: http://dx.doi.org/10.3126/bj.v3i1.7509 Banking Journal Vol.3(2) 2013 pp.28-42

The Private Equity Premium Puzzle

2001 ◽  
Author(s):  
Tobias J. Moskowitz ◽  
Annette Vissing-Jorgensen
Keyword(s):  
Private Equity ◽  
Equity Premium ◽  
Equity Premium Puzzle ◽  
Premium Puzzle
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