US Equity Risk Premiums during the COVID-19 Pandemic

Solution to the Equity Premium Puzzle Using the Sufficiency Factor of the Model

This study provides the solution to the equity premium puzzle. The new model was developed by including the behavior of investors toward risk in financial markets in prior studies. The calculations of this newly tested model show that the value of the coefficient of relative risk aversion is 1.033526 by assuming the value of the subjective time discount factor to be 0.99. Since these values are compatible with the existing empirical studies, they confirm the validity of the newly derived model that provides the solution to the equity premium puzzle.

Dark Matter in (Volatility and) Equity Option Risk Premiums

Emphasizing the statistics of jumps crossing the strike and local time, we develop a decomposition of equity option risk premiums. Operationalizing this theoretical treatment, we equip the pricing kernel process with unspanned risks, embed (unspanned) jump risks, and allow equity return volatility to contain unspanned risks. Unspanned risks are consistent with negative risk premiums for jumps crossing the strike and local time and imply negative risk premiums for out-of-the-money call options and straddles. The empirical evidence from weekly and farther-dated index options is supportive of our…

Solution to the Equity Premium Puzzle

This study provides a solution of the equity premium puzzle. Questioning the validity of the Arrow-Pratt measure of relative risk aversion for detecting the risk behavior of investors under all conditions, a new tool, that is, the sufficiency factor of the model was developed to analyze the risk behavior of investors. The calculations of this newly tested model show that the value of the coefficient of relative risk aversion is 1.033526 by assuming the value of the subjective time discount factor as 0.99. Since these values are compatible with the existing empirical studies, they confirm the v…

Behavioral Finance -- Asset Prices Predictability, Equity Premium Puzzle, Volatility Puzzle: The Rational Finance Approach

In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as anomalies the theory of rational finance cannot explain: Predictability of asset returns, The Equity Premium, (The Volatility Puzzle. We offer resolutions of those objections within the rational finance. We do not claim that those are the only possible explanations of the anomalies, but offer statistical models within the rational theory of finance which can be used without relying on behavioral finance assumptions when searching for explanations of those anomalies.

用时间变化变量解决股权溢价之谜

Solution to the Equity Premium Puzzle with Time-Varying Variables

本文通过构建依赖消费资本资产定价模型的模型，以时间折扣因子假设值计算出相对风险厌恶系数，验证了模型与实证文献的兼容性，并确认了风险态度的合理性。

一次交易一次——解开股权溢价之谜

One trade at a time -- unraveling the Equity Premium Puzzle

本文通过研究金融产品设计的理性本质，解决了股权溢价之谜，并提出了一个经过实验验证的产品设计理论。