The Risk Premium for Equity: Explanations
نویسندگان
چکیده
The equity premium puzzle shows that using standard parameters and setup, the Consumption-based Capital Asset Pricing Model’s (CCAPM’s) prediction of the premium associated with systematic risk is out by an order of magnitude. The object of this paper is to consider the implications of each of the broad classes of explanations of the equity premium puzzle for resource allocation, welfare and policy. We argue that the most robust implications are those that flow directly from the high price of systematic risk and are therefore independent of the resolution of the puzzle. JEL Classification: E62 H55 G12
منابع مشابه
The Risk Premium for Equity: Implications for Resource Allocation, Welfare and Policy*
Analysis of the equity premium puzzle has focused on private sector capital markets. The object of this paper is to consider the welfare and policy implications of each of the broad classes of explanations of the equity premium puzzle. As would be expected, the greater the deviation from the first-best outcome implied by a given explanation of the equity premium puzzle, the more interventionist...
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We thank John Donaldson and Ellen McGrattan for invaluable comments.
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