In the mid-eighties Mehra and Prescott showed that the risk premium earned by American stocks cannot reasonably be explained by conventional capital market models. Using time additive utility, the observed risk pre­ mium can only be explained by unrealistically high risk aversion parameters. This phenomenon is well known as the equity premium puzzle. Shortly aft­ erwards it was also observed that the risk-free rate is too low relative to the observed risk premium. This essay is the first one to analyze these puzzles in the German capital market. It starts with a thorough discussion of the available theoretical mod­ els and then goes on to perform various empirical studies on the German capital market. After discussing natural properties of the pricing kernel by which future cash flows are translated into securities prices, various multi­ period equilibrium models are investigated for their implied pricing kernels. The starting point is a representative investor who optimizes his invest­ ment and consumption policy over time. One important implication of time additive utility is the identity of relative risk aversion and the inverse in­ tertemporal elasticity of substitution. Since this identity is at odds with reality, the essay goes on to discuss recursive preferences which violate the expected utility principle but allow to separate relative risk aversion and intertemporal elasticity of substitution.

Inhalt

Introduction: Subject of Analysis; International Evidence on the Risk-free Rate and the Equity Premium; Purpose and Outline of Analysis.- Intertemporal Asset Pricing: Theory: The Market Pricing Kernel Approach: The Market Pricing Kernel. Arbitrage Free versus Equilibrium Asset Pricing. Market Pricing Kernel and Linear Asset Pricing; Implications of Asset Prices for the Market Pricing Kernel: Implications of Specific Asset Price Processes. Estimating Conditional Distributions from Asset Prices. Placing Restrictions on the Unconditional Distribution using Time Series of Asset Returns; Parametric Models of the Market Pricing Kernel: Conditional Capital Asset Pricing. Consumption-based Equilibrium Asset Pricing; The Calibration Approach for Empirically Investgating Parametric Models of the Market Pricing Kernel: Calibration versus Estimation. Calibration of a Model Economy with i.i.d. Production Growth: An Illustrative Example. Review of Studies Applying the Calibration Approach.- Intertemporal Asset Pricing: Empirical Analysis: Overview and Description of Data: Overview. Description of Data; Analyzing Variance Bounds of the Market Pricing Kernel: Implications of Different Return Time Series for the Market Pricing Kernel. Implications for the Parameters of Parametric Models of the Market Pricing Kernel; Applying the Calibration Approach: A Model Economy with State-switching Production Growth. Analysis of the Non-levered Market Portfolio. Analysis of the Levered Market Portfolio. Separating Consumption and Dividends; Evaluating the Calibrated Equilibrium Models: Additional Unconditional Properties of Implied Rates of Return. Using Conditional Moments; Conclusion.