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| Author: | Grant, S. Quiggin, J. |
| Title: | Public investment and the risk premium for equity |
| Journal: | Economica
2003 : FEB, VOL. 70:277, p. 1-18 |
| Index terms: | Capital markets Investments Financial risk |
| Language: | eng |
| Abstract: | Analysis of the equity premium puzzle has focused on private-sector capital markets. However, the existence of an anomalous equity premium raises important issues in the evaluation of public-sector investment projects. These issues are explored below. The authors begin by formalizing the argument that an equity premium may arise from uninsurable systematic risk in labour income, and show that, other things equal, increases in public ownership of equity will improve welfare, up to the point where the equity premium is eliminated. Finally, the authors consider policy implications and the optimal extent of public ownership. |
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