Abstract

The study provides a comprehensive review on the equity premium puzzle for Finnish stock market. The analysis indicates large risk aversion values for Finnish representative agent to justify the observed equity premium. The negative consumption growth implies a premium for lending in the equilibrium, atypical in reported international evidence. The results for standard consumption model (C-CAPM) show model parameters couldn’t replicate the observed returns on the risk-free bond and proxy for aggregate wealth index, same is reported for the reduced sample estimations. The Hansen and Jagannathan (1997) specification measure further illustrates the inability of the model to explain excess equity premium.

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