Another problem with this line of reasoning is that orthodox economists tend to find risk premiums in the most bizarre cases. Consider this explanation for why highly levered stocks have lower than average equity returns (George and Hwang, 2010):
Costs associated with financial distress are crucial to our explanation for two reasons. First, distress costs depress asset payoffs in low states. Since the occurrence of low states is at least partly systematic, distress costs heighten exposure to systematic risk. Second, firms with high distress costs optimally utilize less leverage than firms with low costs. Since firms with high costs choose low leverage, low leverage firms will have the greatest exposure to systematic risk relating to distress costs. The cross section of expected returns will therefore be negatively related to leverage.
So, as opposed to Miller-Modigliani, which implies that higher leverage is associated with higher risk, higher leverage implies lower risk because such firms are actually less risky, which is why they have higher leverage. Never mind that higher leverage is associated with higher default rates, or that higher leverage is associated with higher volatility. Higher returning assets must be riskier, and so assets that have high volatility, default risk, etc., are just risky in a very subtle way because they must!
One sees what one believes.