The interaction between the equity premium and the risk-free rate

Authors
Grant, S Quiggin, J
Citation
S. Grant et J. Quiggin, The interaction between the equity premium and the risk-free rate, ECON LETT, 69(1), 2000, pp. 71-79
Citations number
5
Categorie Soggetti
Economics
Journal title
ECONOMICS LETTERS
ISSN journal
01651765 → ACNP
Volume
69
Issue
1
Year of publication
2000
Pages
71 - 79
Database
ISI
SICI code
0165-1765(200010)69:1<71:TIBTEP>2.0.ZU;2-T
Abstract
The equity premium arises from the interaction between the atemporal risk p remium for equity, the risk-free rate of intertemporal substitution and the impact of risk on the precautionary motive for saving. Depending on parame ter values, the equity premium may either be increased or reduced by the pr esence of undiversifiable background risk. (C) 2000 Elsevier Science S.A. A ll rights reserved.