BibTeX
@MISC{Rietz87eqlqty~sk,
author = {Thomas A. Rietz},
title = {EQLqTY ~SK PREMIUM ~. ~lufion},
year = {1987}
}
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Abstract
Debreu asset pricing model. They rejected it because it could not explain high enough equity risk premia. They concluded that only non-Arrow-Debreu models would solve this 'puzzle'. Here, I re-specify their model, capturing the effects of possible, though unlikely, market crashes. While maintaining their model's attractive features, this allows it to explain high equity risk premia and low risk-free returns. It ~1oes so with reasonable degrees of time preference and risk aversion, provided the crashes are plausibl;/severe and not too improbable.
