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Equity Premium in Serbia: A Different Kind of Puzzle?

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  • Milos Bozovic

    (University of Belgrade, Serbia)

Abstract

This paper investigates macro-financial aspects of equity premium in Serbia. Using consumption-based equilibrium model and quarterly data on Serbian stocks, 3-month Treasury bills, inflation and aggregate consumption between 2007 and 2014, we show a prominent absence of the usual Equity Premium Puzzle, Correlation Puzzle and Risk-Free Rate Puzzle that are characteristic for developed markets, and report fairly reasonable lower bounds for the relative risk aversion coefficient. In addition, we also find plausible values of subjective discount factor. Regression estimates of a model with recession state variable in the utility function show a significant impact of both risk aversion and precautionary saving motives of investors. The presence of a structural break at the end of 2008 does not change the regression results qualitatively.

Suggested Citation

  • Milos Bozovic, 2015. "Equity Premium in Serbia: A Different Kind of Puzzle?," MIC 2015: Managing Sustainable Growth; Proceedings of the Joint International Conference, Portorož, Slovenia, 28–30 May 2015,, University of Primorska, Faculty of Management Koper.
    • Handle: RePEc:mgt:micp15:153-167
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    References listed on IDEAS

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