Universal Banking and Equity Risk Premium

24 Pages Posted: 5 Jul 2010

See all articles by Sanjay Banerji

Sanjay Banerji

University of Nottingham

Parantap Basu

Durham University - Department of Economics and Finance

Date Written: July 4, 2010

Abstract

Did the unification of commercial and investment banking heighten risk in financial markets due to moral hazard of borrowers? In a simple intertemporal model with moral hazard and uninsured risk, we argue that if financial contracts are properly written, the integration in financial markets could give rise to greater risk sharing arrangement and could eliminate the equity risk premium attributed to informational asymmetry among the lenders and the borrowers.

Keywords: Universal banking, equity risk premium

JEL Classification: G10, E50

Suggested Citation

Banerji, Sanjay and Basu, Parantap, Universal Banking and Equity Risk Premium (July 4, 2010). Available at SSRN: https://ssrn.com/abstract=1634661 or http://dx.doi.org/10.2139/ssrn.1634661

Sanjay Banerji

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Parantap Basu (Contact Author)

Durham University - Department of Economics and Finance ( email )

Durham, DH1 3HY
United Kingdom

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