The equity premium puzzle, described by Mehra and Prescott in 1985, has baffled financial economists for almost two decades and still lacks a satisfactory resolution. For an area of economics, whose main focus is on measuring risks and rewards for risk taking, not being able to explain the
difference in expected returns between two major classes of financial assets
- equity and bonds - is a major challenge. We examine some of the issues associated with the equity premium and related puzzles....[Show more]
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