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The Risk Premium for Equity: Implicatiosn for Resource Allocation, Welfare adn Policy

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  • Grant, Simon

    (Rice U and Australian National U)

  • Quiggin, John

    (U of Queensland)

Abstract

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 are the implied policy conclusions. Nevertheless, even explanations of the equity premium puzzle consistent with a general consumption-based asset pricing model have important welfare and policy implications.

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Bibliographic Info

Paper provided by Rice University, Department of Economics in its series Working Papers with number 2003-14.

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Date of creation: Dec 2003
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Handle: RePEc:ecl:riceco:2003-14

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