Publishers of foundations and trends making research accessible abstract over two decades ago mehra and prescott 1985 challenged the finance profession with a poser the historical us equity premium is an order of magnitude greater than can be rationalized in the context of the standard neoclassical paradigm of financial economics. The equity premium why is it a puzzle rajnish mehra nber working paper no 9512 issued in february 2003 nber programsasset pricing this article takes a critical look at the equity premium puzzle the inability of standard intertemporal economic models to rationalize the statistics that have characterized us financial markets over the past century. The equity premium puzzle a review foundations and trendsr in finance 2008 vol 2 no 1 pp 1 81 indian equity markets measures of fundamental value india policy forum volume 6 2010 pp 1 30 costly financial intermediation in neoclassical growth theory with f piguillem and ec prescott quantitative economics volume 2 . Publishers of foundations and trends making research accessible foundations and trendsr in finance ordering the equity premium puzzle a review rajnish mehra volume 1 volume 1 issue 8 valuation approaches and metrics a survey of the theory and evidence aswath damodaran volume 1 issue 7 . The equity premium puzzle refers to the inability of an important class of economic models to explain the average premium of a well diversified us equity portfolio over us treasury bills observed for more than 100 years the term was coined by rajnish mehra and edward c prescott in a study published in 1985 titled the equity premium a puzzlean earlier version of the paper was published
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