The Risk Premium for Equity: Explanations and Implications

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.risk premium;equity capital;resource allocation;welfare;capital asset pricing

Private Financing of Public Infrastructure

The paper begins with a review of the history of private infrastructure provision in the United Kingdom and Australia, along with some observations on the related issue of privatisation. The next section deals with the problem of public debt and public sector accounting. Although this issue has been downplayed in recent official discussion, the desire to achieve cosmetic reductions in reported debt still plays an important role in the political appeal of the 'private finance initiative' (PFI). The core of the paper deals with the appropriate allocation of risk. The final section of the paper deals with issues raised by the recent collapse of the Enron corporation, and the similarities between its financial strategy and that of the PFI

The Risk Premium for Equity:Explanations and Implications

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.