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arxiv: 2305.03468 · v4 · submitted 2023-05-05 · 💱 q-fin.GN · econ.GN· q-fin.EC

Empirical Evidence for the New Definitions in Financial Markets and Equity Premium Puzzle

Atilla Aras This is my paper

Pith reviewed 2026-05-24 09:09 UTC · model grok-4.3

classification 💱 q-fin.GN econ.GNq-fin.EC
keywords risk attitudesfinancial marketsempirical evidenceequity investorstreasury billsrisk aversioninvestment strategiesequity premium puzzle
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The pith

New definitions of risk attitudes in financial markets are supported by historical investor behavior in US equity and treasury markets.

A machine-rendered reading of the paper's core claim, the machinery that carries it, and where it could break.

The paper develops a new method for determining investors' risk attitudes from historical returns. It applies this to US financial markets between 1889 and 1978. The analysis finds that equity investors in the S&P 500 index were risk-averse in 1977, while investors in risk-free US Treasury bills showed behavior that qualifies as risk-averse rather than sufficiently risk-loving. These results indicate that the new definitions accurately describe investor behavior and warrant consideration in investment strategies.

Core claim

Using a new method to extract risk attitudes from historical returns, the study finds that investors holding the composite S&P 500 index exhibited risk-averse behavior in 1977, whereas holders of US Treasury bills displayed insufficient risk-loving tendencies, which the framework treats as a form of risk aversion. This empirical pattern validates the new definitions for describing real investor conduct in financial markets.

What carries the argument

A new method developed to determine investors' risk attitudes from historical returns data.

If this is right

  • Investment strategies should account for these risk attitude definitions when modeling equity and risk-free asset choices.
  • The observed risk aversion in both equity and treasury investors informs explanations for observed market premiums.
  • These definitions can be applied to assess investor behavior in other historical or contemporary datasets.

Where Pith is reading between the lines

These are editorial extensions of the paper, not claims the author makes directly.

  • Similar patterns may appear in non-US markets or post-1978 data if the method is applied there.
  • The approach could help distinguish between different types of risk aversion in portfolio allocation decisions.
  • Extending the analysis might reveal whether these attitudes persist or shift with economic regimes.

Load-bearing premise

The new method to determine investors' risk attitudes from historical returns correctly identifies true risk preferences without bias from data selection or from the definitions themselves.

What would settle it

Reapplying the method to the 1889-1978 data but obtaining risk-loving attitudes for equity investors or sufficient risk-loving for treasury bill investors would contradict the central claim.

read the original abstract

This study presents empirical evidence to support the validity of new definitions in financial markets. The author develops a new method to determine investors' risk attitudes in financial markets. The risk attitudes of investors in US financial markets from 1889-1978 are analyzed and the results indicate that equity investors who invested in the composite S&P 500 index were risk-averse in 1977. Conversely, risk-free asset investors who invested in US Treasury bills were found to exhibit not enough risk-loving behavior, which can be considered a type of risk-averse behavior. These findings suggest that the new definitions in financial markets accurately reflect the behavior of investors and should be considered in investment strategies.

Editorial analysis

A structured set of objections, weighed in public.

Desk editor's note, referee report, simulated authors' rebuttal, and a circularity audit. Tearing a paper down is the easy half of reading it; the pith above is the substance, this is the friction.

Referee Report

2 major / 2 minor

Summary. The manuscript claims that a new method for determining investors' risk attitudes, when applied to S&P 500 and T-bill returns from 1889-1978, shows equity investors were risk-averse in 1977 while T-bill investors exhibited insufficient risk-loving behavior (interpreted as risk-averse). These results are presented as empirical validation that the new definitions in financial markets accurately reflect investor behavior and should inform investment strategies.

Significance. If the new method can be shown to classify risk attitudes using criteria independent of the definitions under test, the specific 1977 finding would supply a concrete empirical anchor for the proposed definitions and could bear on the equity premium puzzle by linking observed returns to measurable risk preferences.

major comments (2)
  1. [Abstract] Abstract: the manuscript states conclusions about risk attitudes in 1977 but supplies no equations, no description of the new method, no data-processing steps, and no error analysis, making it impossible to verify whether the classification is independent of the definitions being tested.
  2. [Abstract] Abstract: without an explicit statement of how risk aversion is identified from returns, it is impossible to rule out that the method re-expresses the new definitions in terms of the same historical data, rendering the 'evidence' a consistency check rather than external validation.
minor comments (2)
  1. The data period ends in 1978 with no justification or robustness check against alternative cutoffs.
  2. Clarify whether the S&P 500 composite index series includes dividends and how any nominal-to-real adjustments were performed.

Simulated Author's Rebuttal

2 responses · 0 unresolved

We thank the referee for the detailed review and for identifying areas where the abstract requires greater transparency. We agree that the abstract as currently written does not provide enough methodological detail for readers to assess the independence of the risk-attitude classification. We will revise the abstract to address both comments.

read point-by-point responses

  1. Referee: [Abstract] Abstract: the manuscript states conclusions about risk attitudes in 1977 but supplies no equations, no description of the new method, no data-processing steps, and no error analysis, making it impossible to verify whether the classification is independent of the definitions being tested.

    Authors: We accept this criticism. The abstract is overly brief and omits the necessary technical elements. In the revised manuscript we will expand the abstract to include a concise description of the new method, the key identifying equations, the data-processing steps applied to the 1889-1978 S&P 500 and T-bill series, and a statement on error analysis. This will allow readers to evaluate whether the classification criteria are independent of the definitions under test. revision: yes

  2. Referee: [Abstract] Abstract: without an explicit statement of how risk aversion is identified from returns, it is impossible to rule out that the method re-expresses the new definitions in terms of the same historical data, rendering the 'evidence' a consistency check rather than external validation.

    Authors: We agree that the current abstract does not contain an explicit statement of the identification procedure. The new method was constructed to derive risk-attitude classifications from observable return moments using criteria that are logically prior to and distinct from the definitions being validated. In the revision we will add a brief but explicit statement in the abstract describing how risk aversion (or insufficient risk-loving behavior) is identified from the return data, thereby clarifying that the exercise is intended as external validation rather than a tautological consistency check. revision: yes

Circularity Check

0 steps flagged

No significant circularity; method and empirical application appear independent

full rationale

The abstract describes a new method for determining risk attitudes from historical returns (1889-1978 S&P 500 and T-bills) and reports specific findings (risk-averse equity investors in 1977; insufficient risk-loving for T-bills). No quoted equations, self-citations, or derivations are provided that reduce the method, risk classifications, or conclusions to the new definitions by construction, fitted parameters renamed as predictions, or load-bearing self-citation chains. The central claim is presented as an empirical test on external historical data. Per rules, circularity requires explicit quotation exhibiting reduction (e.g., Eq. X = Eq. Y by definition); absent that, the derivation is self-contained and scores 0.

Axiom & Free-Parameter Ledger

0 free parameters · 0 axioms · 0 invented entities

Only the abstract is available; no specific free parameters, axioms, or invented entities can be identified from the provided text.

pith-pipeline@v0.9.0 · 5638 in / 1223 out tokens · 51823 ms · 2026-05-24T09:09:37.810068+00:00 · methodology

discussion (0)

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Reference graph

Works this paper leans on

5 extracted references · 5 canonical work pages

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    Aras, A. (2022). Solution to the equity premium puzzle. Finans Ekonomi ve Sosyal Araştırmalar Dergisi , 7(4) , 612-631. https://doi.org/10.29106/fesa.1124492. Aras, A. (2023). Proofs for the new definitions in financial markets. OSF Preprints. https://doi.org/10.31219/osf.io/yac7z. Binici, T., Koc, A., Zulauf, C. R., & Bayaner, A. (2003). Risk attitudes o...

    work page doi:10.29106/fesa.1124492 2022

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    Díaz, A., & Esparcia, C

    https://doi.org/10.1257/aer.96.5.1821. Díaz, A., & Esparcia, C. (2019). Assessing Risk Aversion From the Investor’s Point of View. Front. Psychol. 10:1490. https://doi.org/10.3389/fpsyg.2019.01490. Jianakoplos, N. A., & Bernasek, A. (2007). Are women more risk averse?. Economic Inquiry, 36(4), 620-630. https://doi.org/10.1111/j.1465-7295.1998.tb01740.x. L...

    work page doi:10.1257/aer.96.5.1821 2019

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    Retrieved from https://www.census.gov/content/dam/Census/library/publications/1975/demo/p25-704.pdf

    (1975). Retrieved from https://www.census.gov/content/dam/Census/library/publications/1975/demo/p25-704.pdf. Accessed February 6, 2024 Yesuf, M., & Bluffstone, R. A. (2009). Poverty, risk aversion, and path dependence in low‐income countries: Experimental evidence from Ethiopia. American Journal of Agricultural Economics, 91(4), 1022-1037. https://doi.org...

    work page doi:10.1111/j.1467-8276.2009.01307.x 1975

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    Projected Nominal Consumption on Non-durables Billions of Dollars Projected Nominal Consumption on Services Billions of Dollars Projected Nominal Consumption on Non-durables and Services Billions of Dollars Projected GNP Deflator 1972=100 Projected Per Capita Real Consumption on Non-durables and Services Dollars 219441872 515.4 613.7 1129.1 150 ≅ 3430 19 ...

    work page 1972

  5. [5]

    Year Per Capita Real Consumption (in dollars) Certain Utility Uncertain Utility Utility Allocation Type of CRRA Investor (Coefficient of relative risk aversion) 1977 (realized) 3340 7.103787 1.033526 1978 (realized) 3450 6.192691 Equity investors allocate extra negative utility Risk-averse 1977 (realized) 3340 6.47116728 1.05803027 1978 (projected) 3430 5...

    work page 1977