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The equity ρrémíùm puzzle refers to the inability of an important class of economic models to explain the average equity risk ρrémíùm (ERP) provided by a diversified portfolio of U.S. equities over that of U.S. Treasury Bills, which has been observed for more than 100 years. There is significant disparity between returns produced by stocks compared to returns produced by government treasury bills. The equity ρrémíùm puzzle addresses the difficulty in understanding and explaining this disparity. This disparity is calculated using the equity risk ρrémíùm:
Equity risk ρrémíùm = Equity Returns - Returns from Government Bonds

= 5% to 8% in the United States.
The risk ρrémíùm represents the compensation awarded to the equity holder for taking on a higher risk by investing in equities rather than government bonds. However, The 5% to 8% ρrémíùm is considered to be an implausibly high difference and the equity ρrémíùm puzzle refers to the unexplained reasons driving this disparity.

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