Likelihood Evidence on the Asset Returns Puzzle

摘要

Standard equilibrium models are unable to replicate the average return on equity and the risk-free rate during 1889-1978,the well-known asset returns puzzle.The present paper,motivated by the excess of outliers in the data,proposes a normal-scale mixture stochastic process for output that is compatible with leptokurtosis.Using formal likelihood-based methods,it is shown that observed asset returns are compatible with posterior distributions implied by the model.