Exact solutions for expected rates of return under markov regime switching: implications for the equity premium puzzle
This paper derives simple closed-form solutions for expected rates of return on stocks and riskless one-period bills under the assumption that shocks to the growth rates of consumption and dividends are generated by a Markov regime-switching process. These closed-form solutions are used to show that...
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| Main Author: | |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Cambridge, Mass.
NBER
1992
|
| Series: | Working paper series / National Bureau of Economic Research
4110 |
| Summary: | This paper derives simple closed-form solutions for expected rates of return on stocks and riskless one-period bills under the assumption that shocks to the growth rates of consumption and dividends are generated by a Markov regime-switching process. These closed-form solutions are used to show that the Markov regime-switching process exacerbates the equity premium puzzle and the risk-free rate puzzle. Three empirical examples illustrate the magnitude of the effects of Markov regime switching on equilibrium expected returns. |
| Physical Description: | 29 S. |
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| 520 | |a This paper derives simple closed-form solutions for expected rates of return on stocks and riskless one-period bills under the assumption that shocks to the growth rates of consumption and dividends are generated by a Markov regime-switching process. These closed-form solutions are used to show that the Markov regime-switching process exacerbates the equity premium puzzle and the risk-free rate puzzle. Three empirical examples illustrate the magnitude of the effects of Markov regime switching on equilibrium expected returns. | ||
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| illustrated | Not Illustrated |
| index_date | 2024-07-02T22:41:24Z |
| indexdate | 2024-07-09T21:25:06Z |
| institution | BVB |
| language | English |
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| spelling | Abel, Andrew B. 1952- Verfasser (DE-588)124189334 aut Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle Andrew B. Abel Cambridge, Mass. NBER 1992 29 S. txt rdacontent n rdamedia nc rdacarrier Working paper series / National Bureau of Economic Research 4110 This paper derives simple closed-form solutions for expected rates of return on stocks and riskless one-period bills under the assumption that shocks to the growth rates of consumption and dividends are generated by a Markov regime-switching process. These closed-form solutions are used to show that the Markov regime-switching process exacerbates the equity premium puzzle and the risk-free rate puzzle. Three empirical examples illustrate the magnitude of the effects of Markov regime switching on equilibrium expected returns. National Bureau of Economic Research <Cambridge, Mass.> NBER working paper series 4110 (DE-604)BV002801238 4110 |
| spellingShingle | Abel, Andrew B. 1952- Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle |
| title | Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle |
| title_auth | Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle |
| title_exact_search | Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle |
| title_exact_search_txtP | Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle |
| title_full | Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle Andrew B. Abel |
| title_fullStr | Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle Andrew B. Abel |
| title_full_unstemmed | Exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle Andrew B. Abel |
| title_short | Exact solutions for expected rates of return under markov regime switching |
| title_sort | exact solutions for expected rates of return under markov regime switching implications for the equity premium puzzle |
| title_sub | implications for the equity premium puzzle |
| volume_link | (DE-604)BV002801238 |
| work_keys_str_mv | AT abelandrewb exactsolutionsforexpectedratesofreturnundermarkovregimeswitchingimplicationsfortheequitypremiumpuzzle |