Miller, Marcus; Weller, Paul; Zhang, Lei - C.E.P.R. Discussion Papers - 2001
The risk premium in the US stock market has fallen far below its historic level, which Shiller (2000) attributes to a … bubble driven by psychological factors. As an alternative explanation, we point out that the observed risk premium may be … that they are insured against downside risk. By allowing for partial credibility and state dependent risk aversion, we show …