It is shown here that the existence of a time variable risk premium cannot be tested without additional specification as to how such a premium should be related to observable variables. Recent empirical results are discussed in this context and it is argued that no conclusive evidence of a time...

Changes in the risk premium are postulated to be related to changes in the distribution of wealth across nations induced by the exchange rate. The model is empirically supported for six out of nine currencies. For the other currencies, the results are as expected, but insignificance inhibits...

Option theory is used here to determine the variables that should explain the price of bank loans to foreign governments. As usual, the key explanatory variable is the variance of the underlying state variable (in casu, government income). It is also shown that these bank loans can often be...

The results in this paper by Mehra and Prescott conflict with other evidence on the equity premium. The reason is that they substitute the smooth per capita consumption on nondurables and services for the more variable true payment process when calculating the price of the market index. In fact,...

Two problems in estimating the expected real return on the market are dealt with: (1) the absence of reliable real data, (2) the absence of observations of market (i.e., economy-wide) returns. By combining financial and monetary theory, a general equilibrium model is constructed, both in a...