Dissecting the Equity Premium

Tyler Beason, David Schreindorfer

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We use option prices and realized returns to decompose risk premia into different parts of the return state space. In the data, 8/10 of the average equity premium is attributable to monthly returns below 210%, but returns below 230% matter very little. In contrast, prominent asset pricing models based on habits, long-run risks, rare disasters, undiversifiable idiosyncratic risk, and constrained intermediaries attribute the premium predominantly to returns above 210% or to the extreme left tail. We show that the discrepancy arises from an unrealistically small price of risk for stock market tail events in the models.

Original languageEnglish (US)
Pages (from-to)2203-2222
Number of pages20
JournalJournal of Political Economy
Issue number8
StatePublished - Aug 2022

ASJC Scopus subject areas

  • Economics and Econometrics


Dive into the research topics of 'Dissecting the Equity Premium'. Together they form a unique fingerprint.

Cite this