Myopic Loss Aversion and the Equity Premium Puzzle

@inproceedings{Benartzi1993MyopicLA,
  title={Myopic Loss Aversion and the Equity Premium Puzzle},
  author={Shlomo Benartzi and Richard H. Thaler},
  year={1993}
}
The equity premium puzzle, first documented by Mehra and Prescott, refers to the empirical fact that stocks have greatly outperformed bonds over the last century. As Mehra and Prescott point out, it appears difficult to explain the magnitude of the equity premium within the usual economics paradigm because the level of risk aversion necessary to justify such a large premium is implausibly large. We offer a new explanation based on Kahneman and Tversky's 'prospect theory'. The explanation has… 
Risk Aversion, Regimes, and Returns: Revisiting the Equity Premium Puzzle †
We reexamine the level and volatility of the equity premium in an overlapping generations environment with time-varying risk aversion. When calibrated with reasonable historical government bond and
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The term “equity premium puzzle” was coined in 1985 by economists Rajnish Mehra and Edward C. Prescott. The equity premium puzzle in considered one of the most significant questions in finance. A
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If decision costs lead agents to update consumption every D periods, then econometricians will find an anomalously low correlation between equity returns and consumption growth (Lynch, 1996). We
The 6d Bias and the Equity Premium Puzzle
If decision costs lead agents to update consumption every D periods, then econometricians will find an anomalously low correlation between equity returns and consumption growth (Lynch 1996). We
Can myopic loss aversion explain the equity risk premium? Evidence from stock markets worldwide
The equity risk premium (ERP) is still a puzzle since scholars cannot explain the excess return without assuming a high degree of risk aversion. Beyond classical theories, recent debates have
Does 'Illiquidity' Rather than 'Risk Aversion' Explain the Equity Premium Puzzle?: The Value of Endogenous Market Trading
Yes. I aim to establish empirically that the "equity premium" puzzle, with its 6% excess return per annum over Treasury bills for the last 100 years on the NYSE, can be explained once the value of
A systematic test for myopic loss aversion theory
  • R. Costa
  • Business
    Review of Behavioral Finance
  • 2018
Purpose Myopic loss aversion, or the combination of loss aversion and frequent portfolio evaluation, has been argued to possibly be one of the factors behind the equity premium puzzle. The purpose
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