Restrictions that general equilibrium theory place upon average returns are found to be strongly violated by the U.S. data in the 1889–1978 period. This result is robust to model specification and measurement problems. We conclude that equilibrium models which are not Arrow-Debreu economies are needed to rationalize the large average equity premium that prevailed during the last 90 years.
Published in: _Journal of Monetary Economics_ (Vol. 15, 1985, pp. 145-161) https://doi.org/10.1016/0304-3932(85)90061-3.