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Open Access Publications from the University of California

Equity Risk Premium and Insecure Property Right

  • Author(s): Magin, Konstantin
  • et al.

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.

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