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

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Listed:
  • 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.

Suggested Citation

  • Grant, Simon & Quiggin, John, 2003. "The Risk Premium for Equity: Implicatiosn for Resource Allocation, Welfare adn Policy," Working Papers 2003-14, Rice University, Department of Economics.
    • Handle: RePEc:ecl:riceco:2003-14
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    File URL: http://www.ruf.rice.edu/~econ/papers/2003papers/14grant.pdf
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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