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8. Equity premium puzzle refers to the phenomenon that observed returns on stocks over the past century are much higher than returns on government bonds.
8. Equity premium puzzle refers to the phenomenon that observed returns on stocks over the past century are much higher than returns on government bonds. a. Outline the model that economists use to predict the difference between returns on bonds and stocks. (50%) b. Explain how the model is applied to the data, and where exactly the equity premium puzzle comes from? (25%) c. What are some of the factors that can account for the equity premium puzzle? (25%)
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