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Monday, May 11, 2020 | History

3 edition of Risk based explanations of the equity premium found in the catalog.

Risk based explanations of the equity premium

John B. Donaldson

Risk based explanations of the equity premium

by John B. Donaldson

  • 217 Want to read
  • 21 Currently reading

Published by National Bureau of Economic Research in Cambridge, Mass .
Written in English

    Subjects:
  • Rate of return -- Econometric models,
  • Risk -- Econometric models

  • About the Edition

    This essay reviews the family of models that seek to provide aggregate risk based explanations for the empirically observed equity premium. Theories based on non-expected utility preference structures, limited financial market participation, model uncertainty and the small probability of enormous losses are detailed. We impose the additional requirements that candidate models yield consistent inter temporal portfolio choice and that a representative agent can be constructed which is independent of the underlying heterogeneous economy"s initial wealth distribution. While many models are able to replicate a wide variety of financial statistics including the premium, few satisfy these latter criteria as well.

    Edition Notes

    StatementJohn Donaldson, Rajnish Mehra.
    SeriesNBER working paper series -- no. 13220., Working paper series (National Bureau of Economic Research) -- working paper no. 13220.
    ContributionsMehra, Rajnish., National Bureau of Economic Research.
    The Physical Object
    Pagination101 p. :
    Number of Pages101
    ID Numbers
    Open LibraryOL17634379M
    OCLC/WorldCa162107769

    3. Models of the Equity Risk Premium We describe twenty models of the equity risk premium, comparing their advantages, disadvantages, and ease of im-plementation. Of course, there are many more . decile to % in the highest institutional ownership decile. Risk-based explanations for this occurrence are found to be unsatisfactory; most notably, the three-factor model is strongly rejected. It is .

      He goes on to say (p.5) “Consequently, the choice of an equity risk premium may have much larger consequences for value than firm-specific inputs such as cash flows, growth and even Author: Allan Millar. known in the literature as the “equity premium puzzle”. The main issue is that consumption growth is too smooth to be consistent with the observed premium. • Various risk-, behavioural- and market friction File Size: KB.

    The book’s focus is on empirical issues at the expense of theoretical explanations of the equity risk premium. Many excellent researchers have offered innovative explanations of the puzzle, and a . Equity risk premium is the difference between returns on equity/individual stock and the risk-free rate of return. It is the compensation to the investor for taking a higher level of risk and investing in equity .


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Risk based explanations of the equity premium by John B. Donaldson Download PDF EPUB FB2

Risk Based Explanations of the Equity Premium John Donaldson, Rajnish Mehra. NBER Working Paper No. Issued in July NBER Program(s):Asset Pricing This essay reviews the family of.

The paper, "Yield Spreads as Alternative Risk Factors for Size and Book-to-Market," 2 sought to determine if the macroeconomic variables of default spread (the spread between the yield on. CHAPTER 3 - Non-Risk-based Explanations of the Equity Premium.

Rajnish Mehra and Edward C. Prescott. Pages This valuable book contains some of the most interesting responses, plus an introduction and a new paper by the original authors. This is financial economics at its best. Robert E. Lucas, Jr. University of Price: $ 1 The following chapter (Mehra and Prescott ()) surveys the literature on non-risk based explanations of the equity premium.

2 Mehra and Prescott () can match the premium with a very. Get this from a library. Risk Based Explanations of the Equity Premium. [John Donaldson; Rajnish Mehra] -- This essay reviews the family of models that seek to provide aggregate risk based explanations for. Downloadable.

This essay reviews the family of models that seek to provide aggregate risk based explanations for the empirically observed equity premium. Theories based on non-expected utility. Get this from a library. Risk based explanations of the equity premium. [John B Donaldson; Rajnish Mehra; National Bureau of Economic Research.] -- This essay reviews the family of models that seek.

Original language: English (US) Title of host publication: Handbook of the Equity Risk Premium: Publisher: Elsevier: Pages: Number of pages: ISBN (Print)Cited by: The finding of risk-based explanations for the momentum premium (at least in equities) is good news for investors who include exposure to the factor in their portfolios because, while it’s possible that.

The book develops the two major themes in explanations of the equity risk premium, namely, risk-based and non-risk-based stories. The book also explores the equity premium’s countercyclicality with. Chapter 3 •Non-Risk-based Explanations of the Equity Premium Mehra and Prescott () argue that an inflation indexed default-free bond portfolio would essentially be a risk free asset that could.

The equity premium puzzle refers to the inability of an important class of economic models to explain the average premium of the returns on a well-diversified U.S.

equity portfolio over U.S. Treasury Bills. Purchase Handbook of the Equity Risk Premium - 1st Edition. Print Book & E-Book.

ISBNRisk-Based Explanations of the Equity Premium. Chapter 3: Non-Risk-based Explanations of the Equity Premium. This book. Els UK chnpdf /9/25 pm Page: 38 Trim: in ×in Floats: Top/Bot TS: diacriTech, India 38 Chapter 2 •Risk-Based Explanations of the Equity Premium Abstrac.

Equity risk premium refers to the excess return that investing in the stock market provides over a risk-free rate. This excess return compensates investors for taking on the relatively higher risk. Introduction. The term structure of equity returns is downward-sloping.

van Binsbergen et al. () show that a synthetically created short-term asset that only pays dividends in the near-term future has Cited by: Behavioral Explanations of the Equity Premium Puzzle Barberis and Huang explain the puzzle as an outcome of irrational investor behavior.

suppose you find, as research indicate, that in the cross ection. The confusion is eliminated by carefully defining what one means by the equity risk premium. Clifford Asness argues that the stock market is expensive, based on an analysis of the "Shiller P/E" (current 5/5(3).

One of the great debates in finance is whether the source of the value premium is risk-based or a behavioral anomaly. In our book, “Your Complete Guide to Factor-Based Investing,” my co-author. The market risk premium is the additional return that's expected on an index or portfolio of investments above the given risk-free rate.

The equity risk premium pertains only to stocks and.book-to-market equity (BE/ME) earn higher returns. While the magnitude of the size effect appears to be small,1 the book-to-market equity effect is both robust and economically large.2 The two most widely File Size: KB.The Equity Premium Puzzle documents the historical equity premium in the United States and in selected countries with significant capital markets, examines the question, 'Is the equity premium a premium for Cited by: