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Title: Explaining The Equity Risk Premium

Author(s): Laurian Lungu and Patrick Minford

Publication Date: April 2005

Keyword(s): equity premium puzzle and risk premium

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Lungu, L and Minford, P. 2005. 'Explaining The Equity Risk Premium'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5017