important subclass of dynamic general equilibrium models studied by Mehra and Prescott (1985) generates negative equity premium for reasonable risk-aversion levels, thus further exacerbating the equity premium puzzle. Rare events hypothesis One possible solution to the equity premium puzzle considered by Julliard and Ghosh (2008) is whether it can be explained by the rare events hypothesis, founded by Rietz (1988). They hypothesized that extreme economic events such as the Great Depression, the World Wars and the Great Financial Crisis resulted in equity holders demanding high equity premiums to account for the possibility of the significant loss they could suffer if these events were to materialise. As such, when these extreme economic events do not occur, equity holders are rewarded with higher returns. However, Julliard and Ghosh concluded that rare events are unlikely to explain the equity premium puzzle because the Consumption Capital Asset Pricing Model was rejected by their data and much greater risk aversion levels were required to explain the equity premium puzzle. Moreover, extreme economic events affect all assets (both equity and bonds) and they all yield low returns. For example, the equity premium persisted during the Great Depression, and this suggests that an even greater catastrophic economic event is required, and it must be one which only affect stocks, not bonds. Myopic loss aversion Benartzi & Thaler (1995) contend that the equity premium puzzle can be explained by myopic loss aversion and their explanation is based on Kahneman and Tversky's prospect theory. They rely on two assumptions about decision-making to support theory; loss aversion and mental accounting. Loss aversion refers to the assumption that investors are more sensitive to losses than gains, and in fact, research calculates utility of losses felt by investors to be twice that of the utility of a gain. The second assumption is that investors frequently evaluate their stocks even when the purpose of the investment is to fund retirement or other long-term goals. This makes investors more risk averse compared to if they were evaluating their stocks less frequently. Their study found that the difference between returns gained from stocks and returns gained from bonds decrease when stocks are evaluated less frequently. The two combined creates myopic loss aversion and Benartzi & Thaler concluded that the equity premium puzzle can be explained by this theory. Individual characteristics Some explanations rely on assumptions about individual behavior and preferences different from those made by