R.Mehra and E.C..Prescott,The equity premium 157 growth rate without varying the first or second moments.The maximal equity premium increased by 0.04 to 0.39 only.These exercises lead us to the conclusion that the result of the test is not sensitive to the specification of the process generating consumption. That the results were not sensitive to increased persistence in the growth rate,that is to increases in implies low frequency movements or non- stationarities in the growth rate do not increase the equity premium.Indeed, by assuming stationarity,we biased the test towards acceptance. 4.2.Effects of firm leverage The security priced in our model does not correspond to the common stocks traded in the U.S.economy.In our model there is only one type of capital, while in an actual economy there is virtually a continuum of capital types with widely varying risk characteristics.The stock of a typical firm traded in the stock market entitles its owner to the residual claim on output after all other claims including wages have been paid.The share of output accruing to stockholders is much more variable than that accruing to holders of other claims against the firm.Labor contracts,for instance,may incorporate an insurance feature,as labor claims on output are in part fixed,having been negotiated prior to the realization of output.Hence,a disproportionate part of the uncertainty in output is probably borne by equity owners. The firm in our model corresponds to one producing the entire output of the economy.Clearly,the riskiness of the stock of this firm is not the same as that of the Standard and Poor's 500 Composite Stock Price Index.In an attempt to match the two securities we price and calculate the risk premium of a security whose dividend next period is actual output less a fraction of expected output. Let a be the fraction of expected date t+1 output committed at date t by the firm.Eq.(7)then becomes e-2a,月广ps+oa-6 e.a的 =1 As before,it is conjectured and verified that p(c,i)has the functional form wic.Substituting wic for pe(c,i)in (15)yields the set of linear equations -三+-0店 (16) for i=1,...,n.This system was solved for the equilibrium w;and eqs.(10), (11),and (14)used to determine the average equity premium