UTILITY FUNCTIONS AND EQUITY PREMIUM PUZZLE: EVIDENCE FROM THE V-4 ECONOMIES

• Authors: Pošta Vít
• Languages of publication: EN

Abstracts

EN

The paper introduces the concept of equity premium puzzle within a stochastic discount factor model and then it presents Hansen-Jagannathan bounds as a means of both capturing this phenomena and also testing various utility function specifications, which might help to explain and solve the puzzle. Three utility frameworks are assumed in the paper: constant relative risk aversion, habit formation and Epstein-Zin utility. Data on equity premiums are analysed for the Czech Republic, Hungary, Poland and Slovakia. The comparison of Hansen-Jagannathan bounds with the restrictions given by the three utility functions shows that it is not possible to expect to employ a universal approach to this issue as the conclusions differ to some extent across the economies examined. Generally the alternative utility frameworks do not seem to be a solution to the equity premium puzzle in case of V-4 economies.

Keywords

EN

RELATIVE RISK; EPSTEIN-ZIN UTILITY; HANSEN-JAGANNATHAN BOUNDS; V-4 ECONOMIES

• Publisher: Institute of Slovak and World Economics and Institute for Forecasting, Slovak Academy of Sciences
• Journal: Ekonomický časopis (Journal of Economics)
• Year: 2012
• Volume: 60
• Issue: 2
• Pages: 113 – 129

Contributors

author

Pošta Vít

• Ekonomická univerzita Praha, Fakulta podnikohospodářská, Katedra mikroekonomiky, Nám. W. Churchilla 4, 130 67 Praha 3, Czech Republic