Democratizing Private Markets: Equilibrium Predictions

Lubos Pastor, Robert Stambaugh and Lucian A. Taylor

No 35665, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how opening private markets to retail investors affects investors and firms. Calibrating a production-based asset-pricing model, we find that democratization raises retail investors' welfare, but barely. Retail investors benefit little from democratization even if they face no extra cost or other disadvantage relative to institutional investors. The private market is simply too small for improved risk sharing to matter much. Whether or not private-market retail investing is costly, democratization substantially reshapes private firms' ownership and materially reduces their cost of capital, leading them to grow. Private equity earns a positive CAPM alpha, which shrinks after democratization.

JEL-codes: G11 G12 G18 G23 (search for similar items in EconPapers)
Date: 2026-08
Note: AP CF
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Working Paper: Democratizing Private Markets: Equilibrium Predictions (2026)
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