New Economist writes:
New Economist: Has Barro solved the equity premium puzzle? : A new paper by Robert Barro to this year's Minnesota Workshop in Macroeconomic Theory attempts to answer the puzzle: Rare Events and the Equity Premium (PDF). Barro's paper builds upon a 1988 JME article by Thomas Rietz entitled "The equity premium: A solution" (sorry, no PDF available), which argued that the premium could be explained by infrequent but very large falls in consumption (i.e. wars, depressions or disasters), if the intertemporal elasticity of substitution of consumption is low.