This is because of two offsetting factors:

Both the risk premium of the market and the volatility of the market are higher in the data than the model would predict, given reasonable values of δ and ρ.

(d) Use δ = 0.99 and ρ = 10 and the Mehra-Prescott data on the mean and standard deviation of consumption growth to compute the standard deviation of the theoretical market return (7.17). Note: This is a very simple illustration of the excess volatility puzzle.