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Edited by Rajnish Mehra, this volume focuses on the equity risk premium puzzle, a term coined by Mehra and Prescott in 1985 which encompasses a number of empirical regularities in the prices of capital assets that are at odds with the predictions of standard economic theory.
Book Synopsis Handbook of the Equity Risk Premium by : Rajnish Mehra
Download or read book Handbook of the Equity Risk Premium written by Rajnish Mehra and published by Elsevier. This book was released on 2011-08-11 with total page 635 pages. Available in PDF, EPUB and Kindle. Book excerpt: Edited by Rajnish Mehra, this volume focuses on the equity risk premium puzzle, a term coined by Mehra and Prescott in 1985 which encompasses a number of empirical regularities in the prices of capital assets that are at odds with the predictions of standard economic theory.
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. This regularity, dubbed "the equity premium puzzle," has spawned a plethora of research efforts to explain it away. In this review, the author takes a retrospective look at the original paper and explains the conclusion that the equity premium is not a premium for bearing non-diversifiable risk
Book Synopsis The Equity Premium Puzzle by : Rajnish Mehra
Download or read book The Equity Premium Puzzle written by Rajnish Mehra and published by Now Publishers Inc. This book was released on 2007-09-27 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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. This regularity, dubbed "the equity premium puzzle," has spawned a plethora of research efforts to explain it away. In this review, the author takes a retrospective look at the original paper and explains the conclusion that the equity premium is not a premium for bearing non-diversifiable risk
Bachelor Thesis from the year 2010 in the subject Business economics - Business Management, Corporate Governance, grade: 1,0, European Business School - International University Schlo Reichartshausen Oestrich-Winkel, language: English, abstract: Ever since the equity premium puzzle (EEP) was published by Mehra and Prescott (1985), it has become one of the most investigated problems in economics (Mehra, 2003, p. 54). The EEP describes the fact that we cannot link historic stock returns with the volatility of consumption growth (in a sense to be made precise below). Mehra and Prescott call this a puzzle as their consumption-based asset pricing model can not plausibly explain the S&P 500's annual risk premium of 6.2% over relatively risk-free governmental treasury bills between 1889 and 1978. This model reproduces an equity premium of 6.2% solely by adapting unreasonable estimates of agents' risk aversion (Mehra & Prescott, 1985, pp. 155-156). In this way, the model also predicts an extreme size of the risk-free rate (Cochrane, 2000, p. 416). Thus, the equity premium is not able to be explained exclusively by the risk of stock price fluctuations. (...) This thesis will examine the EPP from a behavioral perspective. The major research question to be pursued is this: How do behavioral approaches explain the equity premium puzzle? In order to answer this question, a variety of subtasks must be addressed. This includes the investigation of the initial model of Mehra and Prescott (1985) as well as its underlying assumptions. That is, in particular, needed because several well-established classical assumptions must be dropped to set up descriptive behavioral models. In addition, implications from psychology and behavioral economics must be introduced to answer the overall question of this thesis. Hence, the thesis will focus on the notions of loss aversion, narrow framing, and regret theory in an effort to explain the EPP. (...) The remainder of this thesis is or
Book Synopsis Behavioral Explanation of the Equity Premium Puzzle by : Kevin Rink
Download or read book Behavioral Explanation of the Equity Premium Puzzle written by Kevin Rink and published by GRIN Verlag. This book was released on 2010-04 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2010 in the subject Business economics - Business Management, Corporate Governance, grade: 1,0, European Business School - International University Schlo Reichartshausen Oestrich-Winkel, language: English, abstract: Ever since the equity premium puzzle (EEP) was published by Mehra and Prescott (1985), it has become one of the most investigated problems in economics (Mehra, 2003, p. 54). The EEP describes the fact that we cannot link historic stock returns with the volatility of consumption growth (in a sense to be made precise below). Mehra and Prescott call this a puzzle as their consumption-based asset pricing model can not plausibly explain the S&P 500's annual risk premium of 6.2% over relatively risk-free governmental treasury bills between 1889 and 1978. This model reproduces an equity premium of 6.2% solely by adapting unreasonable estimates of agents' risk aversion (Mehra & Prescott, 1985, pp. 155-156). In this way, the model also predicts an extreme size of the risk-free rate (Cochrane, 2000, p. 416). Thus, the equity premium is not able to be explained exclusively by the risk of stock price fluctuations. (...) This thesis will examine the EPP from a behavioral perspective. The major research question to be pursued is this: How do behavioral approaches explain the equity premium puzzle? In order to answer this question, a variety of subtasks must be addressed. This includes the investigation of the initial model of Mehra and Prescott (1985) as well as its underlying assumptions. That is, in particular, needed because several well-established classical assumptions must be dropped to set up descriptive behavioral models. In addition, implications from psychology and behavioral economics must be introduced to answer the overall question of this thesis. Hence, the thesis will focus on the notions of loss aversion, narrow framing, and regret theory in an effort to explain the EPP. (...) The remainder of this thesis is or
An in-depth look into the various aspects of behavioral finance Behavioral finance applies systematic analysis to ideas that have long floated around the world of trading and investing. Yet it is important to realize that we are still at a very early stage of research into this discipline and have much to learn. That is why Edwin Burton has written Behavioral Finance: Understanding the Social, Cognitive, and Economic Debates. Engaging and informative, this timely guide contains valuable insights into various issues surrounding behavioral finance. Topics addressed include noise trader theory and models, research into psychological behavior pioneered by Daniel Kahneman and Amos Tversky, and serial correlation patterns in stock price data. Along the way, Burton shares his own views on behavioral finance in order to shed some much-needed light on the subject. Discusses the Efficient Market Hypothesis (EMH) and its history, and presents the background of the emergence of behavioral finance Examines Shleifer's model of noise trading and explores other literature on the topic of noise trading Covers issues associated with anomalies and details serial correlation from the perspective of experts such as DeBondt and Thaler A companion Website contains supplementary material that allows you to learn in a hands-on fashion long after closing the book In order to achieve better investment results, we must first overcome our behavioral finance biases. This book will put you in a better position to do so.
Book Synopsis Behavioral Finance by : Edwin T. Burton
Download or read book Behavioral Finance written by Edwin T. Burton and published by John Wiley & Sons. This book was released on 2013-03-20 with total page 261 pages. Available in PDF, EPUB and Kindle. Book excerpt: An in-depth look into the various aspects of behavioral finance Behavioral finance applies systematic analysis to ideas that have long floated around the world of trading and investing. Yet it is important to realize that we are still at a very early stage of research into this discipline and have much to learn. That is why Edwin Burton has written Behavioral Finance: Understanding the Social, Cognitive, and Economic Debates. Engaging and informative, this timely guide contains valuable insights into various issues surrounding behavioral finance. Topics addressed include noise trader theory and models, research into psychological behavior pioneered by Daniel Kahneman and Amos Tversky, and serial correlation patterns in stock price data. Along the way, Burton shares his own views on behavioral finance in order to shed some much-needed light on the subject. Discusses the Efficient Market Hypothesis (EMH) and its history, and presents the background of the emergence of behavioral finance Examines Shleifer's model of noise trading and explores other literature on the topic of noise trading Covers issues associated with anomalies and details serial correlation from the perspective of experts such as DeBondt and Thaler A companion Website contains supplementary material that allows you to learn in a hands-on fashion long after closing the book In order to achieve better investment results, we must first overcome our behavioral finance biases. This book will put you in a better position to do so.
The First and Second World Wars, the great depression, oil shocks, inflation, financial crises, stock market crashes, the collapse of the Soviet command economy and Third World disasters are discussed in this comprehensive book. The contributors subject these disasters to in-depth assessment, carefully considering their costs and impact on specific countries and regions, as well as assessing them in a global context. The book examines the legacy of economic disasters and asks whether economic disasters are avoidable or whether policymakers can learn from their mistakes.
Book Synopsis Economic Disasters of the Twentieth Century by : Michael J. Oliver
Download or read book Economic Disasters of the Twentieth Century written by Michael J. Oliver and published by Edward Elgar Publishing. This book was released on 2007-01-01 with total page 382 pages. Available in PDF, EPUB and Kindle. Book excerpt: The First and Second World Wars, the great depression, oil shocks, inflation, financial crises, stock market crashes, the collapse of the Soviet command economy and Third World disasters are discussed in this comprehensive book. The contributors subject these disasters to in-depth assessment, carefully considering their costs and impact on specific countries and regions, as well as assessing them in a global context. The book examines the legacy of economic disasters and asks whether economic disasters are avoidable or whether policymakers can learn from their mistakes.
Book Synopsis The Equity Premium by : Rajnish Mehra
Download or read book The Equity Premium written by Rajnish Mehra and published by . This book was released on 1985 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Book Synopsis Financial Markets and the Real Economy by : John H. Cochrane
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
This book shows we must adjust money supply to account for productivity if deflation is to be avoided. The central banker is not profit oriented and can create money at will, not subject to rational investor constraints. Businesses leverage low interest rates enforced by the central bank to grow and increase employment, compensating for the reduced labor necessary for the former level of goods and services. This leveraged difference in returns is the equity premium. Even a one time productivity increase requires a corresponding permanent increase not in the money supply itself, but in the "rate of increase" of the money supply. Given the steady growth in productivity of the last 100 years, the world economy is now grossly under-stimulated and in danger of precipitous deflation. Both academic models and arguments based on historical events are presented, along with analysis of the meaning of money, investor behavior, and practical techniques for obtaining the equity premium in one's portfolio.
Book Synopsis The Equity Premium Puzzle, Intrinsic Growth & Monetary Policy An Unexpected Solution Theory & Strategy for the Coming Jobless Age by : Robert Shuler
Download or read book The Equity Premium Puzzle, Intrinsic Growth & Monetary Policy An Unexpected Solution Theory & Strategy for the Coming Jobless Age written by Robert Shuler and published by Lulu.com. This book was released on 2016-05-05 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book shows we must adjust money supply to account for productivity if deflation is to be avoided. The central banker is not profit oriented and can create money at will, not subject to rational investor constraints. Businesses leverage low interest rates enforced by the central bank to grow and increase employment, compensating for the reduced labor necessary for the former level of goods and services. This leveraged difference in returns is the equity premium. Even a one time productivity increase requires a corresponding permanent increase not in the money supply itself, but in the "rate of increase" of the money supply. Given the steady growth in productivity of the last 100 years, the world economy is now grossly under-stimulated and in danger of precipitous deflation. Both academic models and arguments based on historical events are presented, along with analysis of the meaning of money, investor behavior, and practical techniques for obtaining the equity premium in one's portfolio.
What is the return to investing in the stock market? Can we predict future stock market returns? How have equities performed over the last two centuries? The authors in this volume are among the leading researchers in the study of these questions. This book draws upon their research on the stock market over the past two dozen years. It contains their major research articles on the equity risk premium and new contributions on measuring, forecasting, and timing stock market returns, together with new interpretive essays that explore critical issues and new research on the topic of stock market investing. This book is aimed at all readers interested in understanding the empirical basis for the equity risk premium. Through the analysis and interpretation of two scholars whose research contributions have been key factors in the modern debate over stock market perfomance, this volume engages the reader in many of the key issues of importance to investors. How large is the premium? Is history a reliable guide to predict future equity returns? Does the equity and cash flows of the market? Are global equity markets different from those in the United States? Do emerging markets offer higher or lower equity risk premia? The authors use the historical performance of the world's stock markets to address these issues.
Book Synopsis The Equity Risk Premium by : William N. Goetzmann
Download or read book The Equity Risk Premium written by William N. Goetzmann and published by Oxford University Press. This book was released on 2006-11-16 with total page 576 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is the return to investing in the stock market? Can we predict future stock market returns? How have equities performed over the last two centuries? The authors in this volume are among the leading researchers in the study of these questions. This book draws upon their research on the stock market over the past two dozen years. It contains their major research articles on the equity risk premium and new contributions on measuring, forecasting, and timing stock market returns, together with new interpretive essays that explore critical issues and new research on the topic of stock market investing. This book is aimed at all readers interested in understanding the empirical basis for the equity risk premium. Through the analysis and interpretation of two scholars whose research contributions have been key factors in the modern debate over stock market perfomance, this volume engages the reader in many of the key issues of importance to investors. How large is the premium? Is history a reliable guide to predict future equity returns? Does the equity and cash flows of the market? Are global equity markets different from those in the United States? Do emerging markets offer higher or lower equity risk premia? The authors use the historical performance of the world's stock markets to address these issues.
This book provides a broad introduction of modern asset pricing theory with equal treatments for both discrete-time and continuous-time modeling. Both the no-arbitrage and the general equilibrium approaches of asset pricing theory are treated coherently within the general equilibrium framework.The analyses and coverage are up to date, comprehensive and in-depth. Topics include microeconomic foundation of asset pricing theory, the no-arbitrage principle and fundamental theorem, risk measurement and risk management, sequential portfolio choice, equity premium decomposition, option pricing, bond pricing and term structure of interest rates. The merits and limitations are expounded with respect to allocation and information market efficiency, along with the classical expectations hypothesis concerning the information content of yield curve and bond prices. Efforts are also made towards the resolution of several well-documented puzzles in empirical finance, which include the equity premium puzzle, the risk free rate puzzle, and the money-ness bias phenomenon of Black-Scholes option pricing model.The theory is self-contained and unified in presentation. The inclusion of proofs and derivations to enhance the transparency of the underlying arguments and conditions for the validity of the economic theory makes an ideal advanced textbook or reference book for graduate students specializing in financial economics and quantitative finance. The explanations are detailed enough to capture the interest of those curious readers, and complete enough to provide necessary background material needed to explore further the subject and research literature.
Book Synopsis Advanced Asset Pricing Theory by : Ma Chenghu
Download or read book Advanced Asset Pricing Theory written by Ma Chenghu and published by World Scientific Publishing Company. This book was released on 2011-01-03 with total page 816 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a broad introduction of modern asset pricing theory with equal treatments for both discrete-time and continuous-time modeling. Both the no-arbitrage and the general equilibrium approaches of asset pricing theory are treated coherently within the general equilibrium framework.The analyses and coverage are up to date, comprehensive and in-depth. Topics include microeconomic foundation of asset pricing theory, the no-arbitrage principle and fundamental theorem, risk measurement and risk management, sequential portfolio choice, equity premium decomposition, option pricing, bond pricing and term structure of interest rates. The merits and limitations are expounded with respect to allocation and information market efficiency, along with the classical expectations hypothesis concerning the information content of yield curve and bond prices. Efforts are also made towards the resolution of several well-documented puzzles in empirical finance, which include the equity premium puzzle, the risk free rate puzzle, and the money-ness bias phenomenon of Black-Scholes option pricing model.The theory is self-contained and unified in presentation. The inclusion of proofs and derivations to enhance the transparency of the underlying arguments and conditions for the validity of the economic theory makes an ideal advanced textbook or reference book for graduate students specializing in financial economics and quantitative finance. The explanations are detailed enough to capture the interest of those curious readers, and complete enough to provide necessary background material needed to explore further the subject and research literature.
