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2. DATA EXERCISE: EQUITY PREMIUM PUZZLE In this question, you will gure out a way to resolve the equity premium puzzle in the standard framework discussed in lecture but with different measures of consumption. We already know that consumption measured by aggregate consumption expenditure does not generate necessary variations in explaining the excess return. Try different measures in consumption (such as durable consumption) to examine how far you can go to explain the equity premium. (1) Obtain historical data on equity returns, safe returns, and consumption growth. Plot your times series in diagrams. Compute variance and covariance of these series. Hint: You may want to use 3M Treasury yields, S&P5OO series (for example, here), and durable consumption expenditure. Feel free to experiment with other series. (2) Does using different measures for consumption partially close the gap between the theoretical prediction and the empirical observation about excess returns on equity? You will need to explain your methodology very carefully and explain your results. 610- 10' ' Assume the power utility function of u(c) = (3) What different measures of consumption, if available, would you use to explain the puzzle? Justify your arguments carefully