The Risk Premium for Equity: Explanations and Implications

S. Grant, J. Quiggin

Research output: Working paperDiscussion paperOther research output

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages26
Volume2001-89
Publication statusPublished - 2001

Publication series

NameCentER Discussion Paper
Volume2001-89

Fingerprint

Equity
Systematic risk
Risk premium
Equity premium puzzle
Capital asset pricing model
Prediction
Resource allocation
Premium

Keywords

  • risk premium
  • equity capital
  • resource allocation
  • welfare
  • capital asset pricing

Cite this

Grant, S., & Quiggin, J. (2001). The Risk Premium for Equity: Explanations and Implications. (CentER Discussion Paper; Vol. 2001-89). Tilburg: Microeconomics.
Grant, S. ; Quiggin, J. / The Risk Premium for Equity : Explanations and Implications. Tilburg : Microeconomics, 2001. (CentER Discussion Paper).
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Grant, S & Quiggin, J 2001 'The Risk Premium for Equity: Explanations and Implications' CentER Discussion Paper, vol. 2001-89, Microeconomics, Tilburg.

The Risk Premium for Equity : Explanations and Implications. / Grant, S.; Quiggin, J.

Tilburg : Microeconomics, 2001. (CentER Discussion Paper; Vol. 2001-89).

Research output: Working paperDiscussion paperOther research output

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Grant S, Quiggin J. The Risk Premium for Equity: Explanations and Implications. Tilburg: Microeconomics. 2001. (CentER Discussion Paper).