Equity risk premium and insecure property rights


How much of the equity risk premium puzzle can be attributed to the insecure property rights of shareholders? This paper develops a version of the CCAPM with insecure property rights (stochastic taxes). The model implies that the current expected equity premium can be reconciled with a coefficient of relative risk aversion of 3.76, thus resolving a substantial part of the equity premium puzzle.

Publication date: 
May 20, 2014
Publication type: 
Journal Article
Economic Theory Bulletin, 3(2), 2014