A Short Note on the Size of the Dot-Com Bubble

A surprisingly large amount of commentary today marks the beginning of the dot-com bubble of the late 1990s from either the Netscape Communications initial public offering of 1995 or Alan Greenspan's "irrational exuberance" speech of 1996. We believe that this is wrong: we see little sign that the aggregate U.S. stock market was in any way in a significant bubble until 1998 or so.

Equity Risk Premium and Insecure Property Right

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 of3:76, thus resolving the equity premium puzzle

Equity Risk Premium and Insecure Property Right

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 of3:76, thus resolving the equity premium puzzle

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. The model implies that the current expected equity premium can be reconciled with a coefficient of risk aversion of 3.76, thus resolving the equity premium puzzle

Why Liberals Should Enthusiastically Support Social Security Personal Accounts

A new, Black-Scholes measure of pension risk suggests that private accounts are a win-win, according to Konstantin Magin.

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 coe¢ cient of relative risk aversion. Employing a range of plausible stochastic tax burdens, the REITs shareholders’ coefficient of relative risk aversion is likely to fall within the interval from 4.3 to 6.3, a value signi…cantly lower than those reported in most of the prior studies for the general stock market

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 coe¢ cient of relative risk aversion. Employing a range of plausible stochastic tax burdens, the REITs shareholders’ coefficient of relative risk aversion is likely to fall within the interval from 4.3 to 6.3, a value signi…cantly lower than those reported in most of the prior studies for the general stock market

The U.S. Equity Return Premium: Past, Present and Future

(Introduction, initial paragraphs) For more than a century, diversified longhorizon investors in America’s stock market have invariably received much higher returns than investors in bonds: a return gap averaging some six percent per year that Rajnish Mehra and Edward Prescott (1985) labeled the “equity premium puzzle.” The existence of this equity return premium has been known for generations: more than eighty years ago financial analyst Edgar L. Smith(1924) publicized the fact that longhorizon investors in diversified equities got a very good deal relative to investors in debt: consistently higher longrun average returns with less risk. It was true, Smith wrote three generations ago, that each individual company’s stock was very risky: “subject to the temporary hazard of hard times, and [to the hazard of] a radical change in the arts or of poor corporate management.” But these risks could be managed via diversification across stocks: “effectively eliminated through the application of the same principles which make the writing of fire and life insurance policies profitable.” Edgar L. Smith was right. Common stocks have consistently been extremely attractive as longterm investments. Over the half century before Smith wrote, the Cowles Commission index of American 3 stock prices deflated by consumer prices shows an average real return on equities of 6.5 percent per year— compared to an average real longterm government bond return of 3.6 percent and an average real bill return of 4.5 percent. 1 Since the start of the twentieth century, the Cowles Commission index linked to the Standard and Poor’s Composite shows an average real equity return of 6.0 percent per year, compared to a real bill return of 1.6 percent per year and a real longterm government bond return of 1.8 percent per year. Since World War II equity returns have averaged 6.9 percent per year, bill returns 1.4 percent per year, and bond returns 1.1 percent per year. Similar gaps between stock and bond and bill returns have typically existed in other economies. Mehra (2003) 2 reports an annual equity return premium of 4.6 percent in postWorld War II Britain, 3.3 percent in Japan since 1970, and 6.6 percent and 6.3 percent respectively in Germany and Britain since the mid1970s