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The Risk Premium For Equity: Implications For Resource Allocation, Welfare And Policy

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  • SIMON GRANT
  • JOHN QUIGGIN

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. Copyright Blackwell Publishing Ltd/University of Adelaide and Flinders University 2006.

Suggested Citation

  • Simon Grant & John Quiggin, 2006. "The Risk Premium For Equity: Implications For Resource Allocation, Welfare And Policy ," Australian Economic Papers, Wiley Blackwell, vol. 45(3), pages 253-268, September.
  • Handle: RePEc:bla:ausecp:v:45:y:2006:i:3:p:253-268
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    Cited by:

    1. Kim, Sei-Wan & Krausz, Joshua & Nam, Kiseok, 2013. "Revisiting asset pricing under habit formation in an overlapping-generations economy," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 132-138.
    2. Siddiqi, Hammad, 2016. "Anchoring and Adjustment Heuristic: A Unified Explanation for Asset-Return Puzzles," Risk and Sustainable Management Group Working Papers 229607, University of Queensland, School of Economics.
    3. John Quiggin, 2010. "Bad Politics Makes Bad Policy: The Case of Queensland's Asset Sales Programme," Economic Papers, The Economic Society of Australia, pages 13-22.
    4. Siddiqi, Hammad, 2015. "Anchoring and Adjustment Heuristic: A Unified Explanation for Equity Puzzles," MPRA Paper 68729, University Library of Munich, Germany.
    5. Siddiqi, Hammad, 2015. "Anchoring Heuristic and the Equity Premium Puzzle," MPRA Paper 68537, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H1 - Public Economics - - Structure and Scope of Government

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