@techreport{NBERw4110,
 title = "Exact Solutions for Expected Rates of Return Under Markov Regime Switching:  Implications for the Equity Premium Puzzle",
 author = "Andrew B. Abel",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "4110",
 year = "1992",
 month = "June",
 URL = "http://www.nber.org/papers/w4110",
 abstract = {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.},
}