Professor Muhammed Ebrahim m.s.ebrahim@durham.ac.uk
Professor
Investor heterogeneity, market segmentation, leverage and the equity premium puzzle.
Ebrahim, Muhammed-Shahid; Mathur, Ike
Authors
Ike Mathur
Abstract
Financial economists for the past two decades have attempted to explain why the equity premium is so high, now known as the equity premium puzzle (EPP). We model investor heterogeneity, market segmentation and optimal leverage, using the time separable standard power utility, market completeness and ignoring transaction costs to explain the EPP. We explain both the EPP and the related risk-free rate puzzle without resorting to preference modification. Furthermore, we show a unique interior equilibrium for the debt ratio, contrary to the work by F. Modigliani, M.H. Miller (The cost of capital, corporation finance and the theory of investment, American Economic Review 48 (1958) 261–297; Corporate income taxes and the cost of capital, American Economic Review 53 (1963), 433–443) and S.C. Myers (Presidential address: The capital structure puzzle, Journal of Finance 39 (1984), 575–592). Our simulations show the relevance of our models.
Citation
Ebrahim, M., & Mathur, I. (2001). Investor heterogeneity, market segmentation, leverage and the equity premium puzzle. Journal of Banking and Finance, 25(10), 1897-1919. https://doi.org/10.1016/s0378-4266%2800%2900164-3
Journal Article Type | Article |
---|---|
Publication Date | 2001-10 |
Deposit Date | Sep 25, 2014 |
Journal | Journal of Banking and Finance |
Print ISSN | 0378-4266 |
Publisher | Elsevier |
Volume | 25 |
Issue | 10 |
Pages | 1897-1919 |
DOI | https://doi.org/10.1016/s0378-4266%2800%2900164-3 |
Public URL | https://durham-repository.worktribe.com/output/1423245 |
You might also like
Sukūk Development and Income Inequality
(2023)
Journal Article
On the Ethicality of Islamic Banking’s Business Model
(2023)
Journal Article
Rationalizing the Takaful Organizational Form with Institutional Theory
(2022)
Book Chapter
Can Trade Credit Rejuvenate Islamic Banking?
(2022)
Journal Article
Political Uncertainty and the Choice of Debt Sources
(2019)
Journal Article
Downloadable Citations
About Durham Research Online (DRO)
Administrator e-mail: dro.admin@durham.ac.uk
This application uses the following open-source libraries:
SheetJS Community Edition
Apache License Version 2.0 (http://www.apache.org/licenses/)
PDF.js
Apache License Version 2.0 (http://www.apache.org/licenses/)
Font Awesome
SIL OFL 1.1 (http://scripts.sil.org/OFL)
MIT License (http://opensource.org/licenses/mit-license.html)
CC BY 3.0 ( http://creativecommons.org/licenses/by/3.0/)
Powered by Worktribe © 2024
Advanced Search