To read this content please select one of the options below:

The Equity Premium Puzzle: New Zealand Evidence

Robert Hibbard (Monash University.)

Pacific Accounting Review

ISSN: 0114-0582

Article publication date: 1 February 2000

192

Abstract

This paper examines the implications of standard barter models of market equilibrium for financial security returns in New Zealand. The key question addressed is: does the ‘equity premium puzzle’ of Mehra and Prescott (1985) found in the U.S. also hold in ?ew Zealand? To examine the existence of the equity premium puzzle, quarterly financial security returns and consumption data are examined from 1965 to 1997 to calibrate parameters in the Consumption Based Asset Pricing Model. Unlike much of the existing international evidence, this paper corrects for durable goods consumption following the assumptions of the model that all consumption be consumed in a given period. Numerical analyses indicate that the class of models examined are unable to generate equity premia consistent with historical estimates of the equity premium in New Zealand. Due to small sample variability however, while this discrepancy is material in size, the result is not statistically significant.

Citation

Hibbard, R. (2000), "The Equity Premium Puzzle: New Zealand Evidence", Pacific Accounting Review, Vol. 12 No. 2, pp. 65-99. https://doi.org/10.1108/eb037953

Publisher

:

MCB UP Ltd

Copyright © 2000, MCB UP Limited

Related articles