The Risk Premium for Equity: Implications for Resource Allocation, Welfare and Policy

16 Pages Posted: 23 Aug 2006

See all articles by Simon Grant

Simon Grant

Rice University - Department of Economics; Australian National University

John Quiggin

University of Queensland - Business School

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 Harold and Quiggin, John, The Risk Premium for Equity: Implications for Resource Allocation, Welfare and Policy. Australian Economic Papers, Vol. 45, No. 3, pp. 253-268, September 2006, Available at SSRN: https://ssrn.com/abstract=925964 or http://dx.doi.org/10.1111/j.1467-8454.2006.00291.x

Simon Harold Grant

Rice University - Department of Economics ( email )

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Australian National University ( email )

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John Quiggin (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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