The risk premium for equity: explanations and implications

Simon Grant () and John Quiggin ()

No 89, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: The equity premium puzzle shows that using standard parameters and setup, the Consumption-based Capital Asset Pricing Model's (CCAPM's) prediction of the premium associated with systematic risk is out by an order of magnitude. The object of this paper is to consider the implications of each of the broad classes of explanations of the equity premium puzzle for resource allocation, welfare and policy. We argue that the most robust implications are those that flow directly from the high price of systematic risk and are therefore independent of the resolution of the puzzle.

JEL-codes: E62 H55 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-pbe
Date: 2001
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:kubcen:200189

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