Browsing by Subject "Equity Premium Puzzle"

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    The equity premium puzzle : a survey of the literature
    (2006) Tözün, Bahar
    This thesis is a survey of the literature on the equity premium puzzle. The puzzle was introduced in 1985 by Mehra and Prescott, who noted that the huge premium of equities over bonds is not consistent with the predictions of the LucasBreeden representative agent paradigm that governs macroeconomic theory today. This thesis describes the equity premium puzzle, conveys the importance of its implications, and classifies and reviews the approaches to explaining it.
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    Inflation risk and default risk in a dynamic general equilibrium asset pricing model for an emerging market economy
    (2002) Ekinci, M. Fatih
    In this thesis, the difference between the T-Bill returns and common stock returns in Turkey is examined. It is observed that there is a bond premium in Turkey unlike the equity premium observed in developed countries. To understand this surprising observation, inflation-risk and default-risk are incorporated to the Mehra-Presscott (1985) dynamic asset pricing model. Inflation-risk alone is found to be insufficient to explain this bond premium. Only after allowing for a perceived default-risk, the observed bond premium of Turkish T-Bills over Turkish common stocks can be explained by such a model.