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Explaining The Equity Risk Premium

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  • Minford, Patrick
  • Lungu, Laurian

Abstract

We develop a simple overlapping generations model in which the young have a choice in investing in equities and index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such a long-term investment predicts an equity premium that matches historical values.

Suggested Citation

  • Minford, Patrick & Lungu, Laurian, 2005. "Explaining The Equity Risk Premium," CEPR Discussion Papers 5017, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5017
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    Cited by:

    1. Hatcher, Michael, 2014. "Indexed versus nominal government debt under inflation and price-level targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 126-145.

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    More about this item

    Keywords

    Equity premium puzzle; risk premium;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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