About two dozen of the nation’s leading economists will gather later this month at UCSB to celebrate the 20th anniversary of the publication of the seminal paper, “The Equity Premium: A Puzzle.” It was co-authored by Rajnish Mehra, UCSB professor of economics, and Edward Prescott of Arizona State University, co-winner of the 2004 Nobel Prize in Economic Sciences.

Both economists will attend the invitation-only event on Oct. 28-29, which is cosponsored by UCSB’s Department of Economics and the Laboratory for Aggregate Economics and Finance. The lab is a new research center directed by Finn Kydland, professor of economics, who shared the 2004 Nobel Prize with Prescott. Kydland will be among the conference participants.

The Mehra-Prescott paper, one of the best-known in financial economics, has influenced the practice of portfolio management worldwide. The puzzle concerns the inability of standard economic models to replicate the magnitude of the average amount by which a well-diversified portfolio of stocks pays returns in excess of the risk-free rate: the equity premium.

The authors’ conclusions challenged the accepted paradigms of financial economics and have set the research agenda in this area for the past two decades. Finding a cogent solution to the equity-premium puzzle remains an open question for financial theorists.