WOULD THERE EVER BE CONSENSUS VALUE AND SOURCE OF THE EQUITY RISK PREMIUM? A REVIEW OF THE EXTANT LITERATURE

Abstract

This paper reviews the extant studies on the equity premium. While paper attempts to make the review comprehensive, describing all of the work in this area is difficult considering the numerous researches that have been done in this area. Essentially, the paper assesses the relationship between the excess return and the equity risk premium and draws attention to their interchangeable use in the finance literature. Existing literature is reviewed around possible theories explaining the equity premium puzzle and followed by the empirical evidence on the theories. Finally, this paper focuses on the problems of attaining consensus value and source of the market risk premium, which makes equity premium puzzle an unresolved issue among the academics and finance practitioners.