Social Security and the Equity Premium Puzzle

Conny Olovsson ()
Additional contact information
Conny Olovsson: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden

No 729, Seminar Papers from Stockholm University, Institute for International Economic Studies

Abstract: This paper shows that social security may be an important factor in explaining the equity premium puzzle. In the absence of shortselling constraints, the young shortsell bonds to the middle-aged and buy equity. Social security reduces the bond demand of the middle-aged, thereby restricting the possibilities of the young to finance their equity purchases. They demand less equity and the return to equity goes up. Social security also increases the covariance between future consumption and the equity income of the young. The efect on the equity premium is substantial. In fact, a model with social security and borrowing constraints can generate a fairly realistic equity premium.

Keywords: Asset prices; the equity premium puzzle; social security (search for similar items in EconPapers)
JEL-codes: G12 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-03-16
View list of references

Downloads: (external link)
http://www.iies.su.se/publications/seminarpapers/729.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:hhs:iiessp:0729

Access Statistics for this paper

More papers in Seminar Papers from Stockholm University, Institute for International Economic Studies
Address: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Contact information at EDIRC.
Series data maintained by Pamela Campa ().