2012-04: The Equity Risk Premium Puzzle: A Resolution – The Case for Real Estate


This paper examines and estimates the equity risk premium for securitized real estate (U.S. Real Estate Investment Trusts-REITs). By introducing stochastic taxes for equity REITs shareholders, the analysis demonstrates that the current expected after-tax risk premium for REITs generate a reasonable coefficient of relative risk aversion. Employing a range of plausible stochastic tax burdens, the REITs shareholders’ coefficient cient of relative risk aversion is likely to fall within the interval from 4.3 to 6.3, a value signicantly lower than those reported in most of the prior studies for the general stock market.

Robert H. Edelstein
Publication date: 
May 18, 2012
Publication type: 
2012 Working Papers