The Equity Premium in Retrospect

Mehra, Rajnish; Prescott, Edward C.

doi:10.3386/w9525

Cited by 203 publications

(170 citation statements)

References 102 publications

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“…These assumptions require that the relative risk aversion (1-) is greater than 1, which is consistent with the empirical findings in the large equity premium literature (see Mehra and Prescott, 2003). The relation 0     implies that the EIS < ES < 1.…”

Section: Exchange Rate Multiplier Economic States and Consumptionsupporting

confidence: 71%

Exchange risk and asset returns: A theoretical and empirical study of an open economy asset pricing model

Lin

Zhang³

2014

Emerging Markets Review

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Section: Exchange Rate Multiplier Economic States and Consumptionsupporting

confidence: 71%

Exchange risk and asset returns: A theoretical and empirical study of an open economy asset pricing model

Lin

Zhang³

2014

Emerging Markets Review

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“…Indeed, many papers find evidence for risk compensation in wages, see the overview by Hartog (2005). Nevertheless, the high return on human capital is suggestive of a human capital premium puzzle, just like in the finance literature (see e.g., Mehra and Prescott, 2003). Palacios-Huerta (2004) has shown that risk alone cannot explain the difference between the real return on human capital and the risk-free interest rate.…”

Section: Introductionmentioning

confidence: 99%

Real options and human capital investment

Jacobs

2007

Labour Economics

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This paper extends the standard human capital model with real options. Real options affect investment behavior when risky investments in human capital are irreversible and individuals can affect the timing of the investment. Option values make individuals more reluctant to invest in human capital and required returns on the investment increase. Higher tax rates (or lower subsidies) depress human capital investments, but to a lesser extent than in the standard human capital model. A flat income tax remains to be neutral if education expenditures are fully deductible. Real options may explain a large human capital premium, small responsiveness of human capital investments to financial incentives, large sensitivity of investment behavior to low-return outcomes and more delayed investment in human capital even when returns are high.

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“…Plausible and/or historical values of the parameters of these equations (the coefficient of relative risk aversion, the growth rate and variance of consumption, the covariance between returns and the marginal utility of consumption, and the subjective rate of time preference) do not yield discount rates that match the rates which are observed in the market. These anomalies go by names such as "the equity premium puzzle" and "the risk-free rate puzzle," and they show up strongly not only in data for the US, but also in data for other countries with well-developed asset markets (Campbell 2003;Mehra and Prescott 2003). Despite an enormous amount of effort by the best economists to resolve these paradoxes (literally hundreds of scholarly papers have been published on these puzzles), there is no professional consensus on how they might be resolved.…”

Section: The Discounted Utility Frameworkmentioning

confidence: 99%

Limitations of integrated assessment models of climate change

et al. 2009

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The integrated assessment models (IAMs) that economists use to analyze the expected costs and benefits of climate policies frequently suggest that the "optimal" policy is to go slowly and to do relatively little in the near term to reduce greenhouse gas emissions. We trace this finding to the contestable assumptions and limitations of IAMs. For example, they typically discount future impacts from climate change at relatively high rates. This practice may be appropriate for short-term financial decisions but its extension to intergenerational environmental issues rests on several empirically and philosophically controversial hypotheses. IAMs also assign monetary values to the benefits of climate mitigation on the basis of incomplete information and sometimes speculative judgments concerning the monetary worth

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The Equity Premium in Retrospect

Cited by 203 publications

References 102 publications

Exchange risk and asset returns: A theoretical and empirical study of an open economy asset pricing model

Exchange risk and asset returns: A theoretical and empirical study of an open economy asset pricing model

Real options and human capital investment

Limitations of integrated assessment models of climate change

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