TY  - JOUR
AU  - Weil,Philippe
TI  - The Equity Premium Puzzle and the Riskfree Rate Puzzle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2829
PY  - 1989
Y2  - 1989
UR  - http://www.nber.org/papers/w2829
L1  - http://www.nber.org/papers/w2829.pdf
N1  - Author contact info:
Philippe Weil
Director, Universite Libre de Bruxelles
ECARES
50, Avenue Roosevelt CP 114
B-1050 Brussels  BELGIUM
Tel: 32-2-650-4220
Fax: 32-2-650-4475
E-Mail: philippe.weil@ulb.ac.be
AB  - This paper studies the implications for general equilibrium asset pricing of a recently introduced class of Kreps-Porteus non-expected utility preferences, which is characterized by a constant intertemporal elasticity of substitution and a constant, but unrelated, coefficient of relative risk aversion. It is shown that the solution to the "equity premium puzzle" documented by Mehra and Prescott [19851 cannot be found, for plausibly calibrated parameter values, by simply separating risk aversion from intertemporal substitution. Rather, relaxing the parametric restriction on tastes implicit in the time-addictive expected utility specification and adopting Kreps-Porteus preferences in the direction of "more realism" is likely to add a "riskfree rate puzzle" to Mehra's and Prescott's "equity premium puzzle."
ER  -