Exact Solutions for Expected Rates of Return Under Markov Regime Switching: Implications for the Equity Premium Puzzle / Andrew B. Abel.

Author
Abel, Andrew B. [Browse]
Format
Book
Language
English
Published/​Created
Cambridge, Mass. National Bureau of Economic Research 1992.
Description
1 online resource: illustrations (black and white);

Details

Related name
Series
  • Working Paper Series (National Bureau of Economic Research) no. w4110. [More in this series]
  • NBER working paper series no. w4110
Summary note
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.
Notes
June 1992.
Source of description
Print version record
Other title(s)
Exact Solutions for Expected Rates of Return Under Markov Regime Switching
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