The equity premium and risk-free rate puzzles in a turbulent economy: Evidence from 105 years of data from South Africa

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dc.contributor.authorHassan, Shakill
dc.contributor.authorvan Biljon, Andrew
dc.date.accessioned2018-06-05T14:30:01Z
dc.date.available2018-06-05T14:30:01Z
dc.date.issued2010
dc.date.updated2016-01-13T12:11:05Z
dc.description.abstractThis paper presents a detailed empirical examination of the South African equity premium, and a quantitative theoretic exercise to test the canonical inter-temporal consumption-based assetpricing model under power utility. Over the long run, the South African stock market produced average returns six to eight percentage points above bonds and cash, and at the 20-year horizon, an investor would not have experienced a single negative realised equity premium over the entire 105-year period we examine. Yet the maximum equity premium rationalised by the consumptionbased model is 0.4%. The canonical macro-financial model closely matches the average risk-free rate, using realistic parameters for the coefficient of risk aversion and a positive rate of time preference.
dc.identifierhttp://dx.doi.org/10.1111/j.1813-6982.2010.01237.x
dc.identifier.apacitationHassan, S., & van Biljon, A. (2010). The equity premium and risk-free rate puzzles in a turbulent economy: Evidence from 105 years of data from South Africa. <i>South African Journal of Economics</i>, http://hdl.handle.net/11427/28229en_ZA
dc.identifier.chicagocitationHassan, Shakill, and Andrew van Biljon "The equity premium and risk-free rate puzzles in a turbulent economy: Evidence from 105 years of data from South Africa." <i>South African Journal of Economics</i> (2010) http://hdl.handle.net/11427/28229en_ZA
dc.identifier.citationHassan, S., & Van Biljon, A. (2010). THE EQUITY PREMIUM AND RISK‐FREE RATE PUZZLES IN A TURBULENT ECONOMY: EVIDENCE FROM 105 YEARS OF DATA FROM SOUTH AFRICA. South African Journal of Economics, 78(1), 23-39.
dc.identifier.ris TY - AU - Hassan, Shakill AU - van Biljon, Andrew AB - This paper presents a detailed empirical examination of the South African equity premium, and a quantitative theoretic exercise to test the canonical inter-temporal consumption-based assetpricing model under power utility. Over the long run, the South African stock market produced average returns six to eight percentage points above bonds and cash, and at the 20-year horizon, an investor would not have experienced a single negative realised equity premium over the entire 105-year period we examine. Yet the maximum equity premium rationalised by the consumptionbased model is 0.4%. The canonical macro-financial model closely matches the average risk-free rate, using realistic parameters for the coefficient of risk aversion and a positive rate of time preference. DA - 2010 DB - OpenUCT DP - University of Cape Town J1 - South African Journal of Economics LK - https://open.uct.ac.za PB - University of Cape Town PY - 2010 T1 - The equity premium and risk-free rate puzzles in a turbulent economy: Evidence from 105 years of data from South Africa TI - The equity premium and risk-free rate puzzles in a turbulent economy: Evidence from 105 years of data from South Africa UR - http://hdl.handle.net/11427/28229 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/28229
dc.identifier.vancouvercitationHassan S, van Biljon A. The equity premium and risk-free rate puzzles in a turbulent economy: Evidence from 105 years of data from South Africa. South African Journal of Economics. 2010; http://hdl.handle.net/11427/28229.en_ZA
dc.language.isoeng
dc.publisher.departmentSchool of Economicsen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.sourceSouth African Journal of Economics
dc.source.urihttp://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2010.01237.x/abstract
dc.subject.otherConsumption-based asset pricing, stochastic discount factor, equity risk premium puzzle, risk-free rate, risk aversion coefficient, South Africa
dc.titleThe equity premium and risk-free rate puzzles in a turbulent economy: Evidence from 105 years of data from South Africa
dc.typeJournal Article
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