The Demand for Capital Market Returns: A New Equilibrium Theory

International variations in expected equity premia: Role of financial architecture and governance

“…One way to think about this extra risk and its price is to think about how the supply and demand for equity investments may differ across countries; especially as most countries have less than perfect capital markets. Ibbotson et al (2006) suggest that because of many obstacles and limitations, the supply and demand for equity in markets may not respond to market forces as would be expected from a theoretical view of efficient markets. 1 For example, the supply of equity may be restricted as bureaucratic rules and regulations may deter the formation and market listing of corporate shares.…”

“…Similarly, it is also reasonable that many social, cultural, legal and governance characteristics of a country might also affect the demand for equity. Ibbotson et al (2006) suggest that the demand for equity return is also affected by concern for real returns as opposed to nominal returns (Moerman and van Dijk (2010) document that inflation risk is priced in international asset returns). 1 Ibbotson et al (2006) actually start with somewhat of an alternative view to the commonly held notion that prices in capital markets are set by the supply and demand for capital.…”

“…Ibbotson et al (2006) suggest that the demand for equity return is also affected by concern for real returns as opposed to nominal returns (Moerman and van Dijk (2010) document that inflation risk is priced in international asset returns). 1 Ibbotson et al (2006) actually start with somewhat of an alternative view to the commonly held notion that prices in capital markets are set by the supply and demand for capital. Instead, they focus on the viewpoint of the supplier of capital (an investor) and suggest that there is a supply and demand for returns, as returns are priced in the marketplace.…”

Making Retirement Income Last a Lifetime

“…6 We assume that investors care mostly about maximizing return, subject to a penalty for or concern about risk (in the sense of volatility). We also assume, however, that investors care about liquidity, taxes, and other investor costs (see Ibbotson, Diermeier, and Siegel 1984); some might regard this list of concerns as "behavioral," and we do not mind the label, although we could just as easily argue that a purely rational investor facing friction costs would be averse to illiquidity-and so on down the line of other nonrisk, nonreturn attributes. At any rate, the evidence that investors dislike trading their liquid portfolios for illiquid, but otherwise very attractive, life annuities is overwhelming.…”

The New Economics of Liquidity and Financial Frictions

“…Ibbotson, Diermeier, and Siegel (1984) argued that an asset's "marketability," which includes the concept of liquidity, affects expected return. This very early paper was followed by Amihud and Mendelson (1986) and Amihud, Mendelson, and Pedersen (2013).…”