Premium
ON THE NEGATIVE RISK PREMIUM FOR RISK ADJUSTED DISCOUNT RATES: A COMMENT AND EXTENSION
Author(s) -
Booth Laurence D.
Publication year - 1983
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1983.tb00418.x
Subject(s) - risk premium , economics , valuation (finance) , imperfect , extension (predicate logic) , econometrics , stochastic discount factor , cash flow , preference , actuarial science , financial economics , capital asset pricing model , microeconomics , computer science , finance , linguistics , philosophy , programming language
This paper develops conditions necessary for negative risk premia to emerge at the market level, and at the individual level in imperfect markets. It also correctly shows how to discount cash outflows. The model used to integrate these topics is the state‐preference model of security valuation; the most general model available. The paper corrects serious errors contained in recent work published in the journal.