文档介绍：THE EQUITY PREMIUM IN RETROSPECT
Rajnish Mehra*
University of California, Santa Barbara and NBER
and
Edward C. Prescott*
University of Minnesota and Federal Reserve Bank of Minneapolis
ing in the Handbook of the Economics of Finance
Edited by . Constantinides, M. Harris and R. Stulz
North Holland, Amsterdam
Current draft: Feb 2003
We thank e Constantinides, John Donaldson, Ellen R. McGrattan and Mark Rubinstein for helpful
discussions. Mehra acknowledges financial support from the Academic Senate of the University of
California. Prescott acknowledges financial support from the National Science Foundation.
2
More than two decades ago, we demonstrated that the equity premium (the return earned
by a risky security in excess of that earned by a relatively risk-free T-bill), was an order of mag-
nitude greater than could be rationalized in the context of the standard neoclassical paradigms of
financial economics as a premium for bearing risk. We dubbed this historical regularity ‘the eq-
uity premium puzzle.’(Mehra and Prescott(1985)). Our challenge to the profession has spawned
a plethora of research efforts to explain it away.
In this paper, we take a retrospective look at the puzzle, critically examine the data
sources used to document the puzzle, attempt to clearly explain it and evaluate the various at-
tempts to solve it. The paper anized into four parts. Part 1 documents the historical equity
premium in the United States and in selected countries with significant capital markets in terms
of market value ments on the data sources. Part 2 examines the question, ‘Is the equity
premium due to a premium for bearing non-diversifiable risk?’ Part 3 examines the related ques-
tion, ‘Is the equity premium due to borrowing constraints, a liquidity premium or taxes?’
Finally, part 4 examines the equity premium expected to prevail in the future.
We conclude that research to date suggests that the answer to the first question is ‘no’,