The equity premium: A puzzle

Mehra, Rajnish; Prescott, Edward C.

doi:10.1016/0304-3932(85)90061-3

Cited by 4,980 publications

(3,452 citation statements)

References 9 publications

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“…We show in a simple setting similar to that of Mehra and Prescott (1985) that small changes in risk aversion can lead to seasonal patterns of equity returns, risk-free rates, and equity premia that are broadly consistent with observed annual seasonal patterns in US data. In that setting, however, we are unable to reproduce the stylized fact that risk-free returns vary much more modestly than risky asset returns.…”

supporting

confidence: 73%

“…To illustrate the basic intuition of our model and to motivate the use of recursive preference, we start with the Lucas (1978) economy that Mehra and Prescott (1985) explore, modifying it to allow the representative agent to have two states of risk aversion.…”

Section: A Simple Mehra-prescott-style Asset Pricing Modelmentioning

confidence: 99%

“…We use two alternative calibrations for our modeling of consumption growth. The first is the classic parameterization of Mehra and Prescott (1985) with negative autocorrelation of consumption growth, mean consumption growth equal to 1.8%, and standard deviation of growth equal to 3.6%. The second is based on updated consumption data from January 1959 to December 2007.…”

Section: Data and Model Calibrationmentioning

confidence: 99%

“…We restrict our attention to data starting in 1959 due to availability of the risk-free Treasury series we employ, described below. The consumption data we collect for this exercise is real nondurables and services consumption (BEA), identical to Mehra and Prescott (1985).…”

Section: Data and Model Calibrationmentioning

confidence: 99%

“…For our calibration exercise, we use CRSP value-weighted returns including dividends for the risky asset, and for the risk-free asset we use the 6-Month Treasury bill secondary market rate, from Board of Governors of the Federal Reserve System. We deflate the nominal series following Mehra and Prescott (1985) using a deflator series produced by dividing real consumption of non-durables and services by the nominal consumption on non-durables and services. For this calibration, we look to semi-annual data, with the semi-annual periods beginning in September and March of each year, matching the seasonal peaks of the onset of and recovery from SAD.…”

Section: Data and Model Calibrationmentioning

confidence: 99%

See 4 more Smart Citations

Time-Varying Preferences and SAD: Evidence from an Asset-Pricing Model

et al. 2009

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supporting

confidence: 73%

Section: A Simple Mehra-prescott-style Asset Pricing Modelmentioning

confidence: 99%

Section: Data and Model Calibrationmentioning

confidence: 99%

Section: Data and Model Calibrationmentioning

confidence: 99%

Section: Data and Model Calibrationmentioning

confidence: 99%

See 3 more Smart Citations

Time-Varying Preferences and SAD: Evidence from an Asset-Pricing Model

et al. 2009

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Mental accounting matters

Thaler

1999

J. Behav. Decis. Making

2,280

444

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Mental accounting is the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities. Making use of research on this topic over the past decade, this paper summarizes the current state of our knowledge about how people engage in mental accounting activities. Three components of mental accounting receive the most attention. This first captures how outcomes are perceived and experienced, and how decisions are made and subsequently evaluated. The accounting system provides the inputs to be both ex ante and ex post cost–benefit analyses. A second component of mental accounting involves the assignment of activities to specific accounts. Both the sources and uses of funds are labeled in real as well as in mental accounting systems. Expenditures are grouped into categories (housing, food, etc.) and spending is sometimes constrained by implicit or explicit budgets. The third component of mental accounting concerns the frequency with which accounts are evaluated and ‘choice bracketing’. Accounts can be balanced daily, weekly, yearly, and so on, and can be defined narrowly or broadly. Each of the components of mental accounting violates the economic principle of fungibility. As a result, mental accounting influences choice, that is, it matters. Copyright © 1999 John Wiley & Sons, Ltd.

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The Feldstein-Horioka puzzle and capital mobility: a review

Kulasi²,

1998

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This paper reviews how economists responded to the Feldstein–Horioka (FH) view that a high saving‐investment association across OECD countries implied low capital mobility. This posed an uncomfortable puzzle since the conventional wisdom in most exchange rate and open‐economy macroeconomic models was that capital mobility was high. In the face of a variety of replications, the FH result of a high cross‐section association between saving and investment rates in OECD countries has remained remarkably robust. The debate over whether saving‐investment comovements are informative about capital mobility is still unresolved although the sceptics appear to be in the ascendancy. © 1998 John Wiley & Sons, Ltd.

show abstract

The equity premium: A puzzle

Cited by 4,980 publications

References 9 publications

Time-Varying Preferences and SAD: Evidence from an Asset-Pricing Model

Time-Varying Preferences and SAD: Evidence from an Asset-Pricing Model

Mental accounting matters

The Feldstein-Horioka puzzle and capital mobility: a review

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