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Democratizing Private Markets: Equilibrium Predictions

Author

Listed:
  • Pástor, LuboÅ¡
  • Stambaugh, Robert F.
  • Taylor, Lucian

Abstract

We study how opening private markets to retail investors affects investors and firms. Calibrating a production-based asset-pricing model, we find that democratization raises retail investors' welfare, but barely. Retail investors benefit little from democratization even if they face no extra cost or other disadvantage relative to institutional investors. The private market is simply too small for improved risk sharing to matter much. Whether or not private-market retail investing is costly, democratization substantially reshapes private firms' ownership and materially reduces their cost of capital, leading them to grow. Private equity earns a positive CAPM alpha, which shrinks after democratization.

Suggested Citation

  • Pástor, LuboÅ¡ & Stambaugh, Robert F. & Taylor, Lucian, 2026. "Democratizing Private Markets: Equilibrium Predictions," CEPR Discussion Papers 21892, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21892
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    File URL: https://cepr.org/publications/DP21892
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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