About the implied risk aversion coefficient

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Reference no: EM132124252

The equity premium puzzle originates from the observation that equity returns exceeded the risk-free rate to an extent that is inconsistent with reasonable levels of risk aversion—at least when average rates of return are taken to represent expectations.

i) Comment on whether the time series in Mehra and Prescott (JME, 1985) might be too short to make safe inferences about the implied risk aversion coefficient

ii) Comment on whether the survivorship bias might be one source of the equity premium puzzle.

iii) Discuss the interpretation by Fama and French (JF, 1992) to the equity premium puzzle.

Reference no: EM132124252

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