TY  - JOUR
AU  - Donaldson,John
AU  - Mehra,Rajnish
TI  - Risk Based Explanations of the Equity Premium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13220
PY  - 2007
Y2  - July 2007
UR  - http://www.nber.org/papers/w13220
L1  - http://www.nber.org/papers/w13220.pdf
N1  - Author contact info:
John B. Donaldson
Columbia Business School
3022 Broadway, Uris Hall
New York, NY 10027-6902
Tel: 212/854-3401
E-Mail: jd34@columbia.edu

Rajnish Mehra
Department of Economics
W. P. Carey School of Business
Arizona State University
PO Box 879801
Tempe, AZ  85287-9801
Tel: 480 965-6335
Fax: 480 965-0748
E-Mail: rajnish.mehra@asu.edu
AB  - This essay reviews the family of models that seek to provide aggregate risk based explanations for the empirically observed equity premium. Theories based on non-expected utility preference structures, limited financial market participation, model uncertainty and the small probability of enormous losses are detailed. We impose the additional requirements that candidate models yield consistent inter temporal portfolio choice and that a representative agent can be constructed which is independent of the underlying heterogeneous economy's initial wealth distribution.  While many models are able to replicate a wide variety of financial statistics including the premium, few satisfy these latter criteria as well.
ER  -