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Explaining the equity risk premium

Lungu, Laurian and Minford, Anthony Patruck Leslie 2006. Explaining the equity risk premium. The Manchester School 74 (6) , pp. 670-700. 10.1111/j.1467-9957.2006.00522.x

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We develop a simple overlapping generations model in which the young have a choice in investing in equities or index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such long-term investments predicts an equity premium that matches historical values. Moreover, we calibrate the model and show that it can predict up to the fourth moment of both the observed risk premium and the real rate of interest.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Publisher: Wiley
ISSN: 1463-6786
Last Modified: 04 Jun 2017 04:28

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