We model and estimate equity premium in a general equilibrium setting. It is done by reframing the Merton's model (1974) in the context of the general equilibrium models such as Ahn and Thompson (1988) and Bates (1991). A novelty of our approach is to derive equity premium by evaluating the equity returns dynamics at equilibrium and to thereby allow a non-risk convexity premium for equity as well as its risk premium. While risk premium is generally due to systematic risk, convexity premium is due to the option-like feature of equity, and exists under returns discontinuity and risk neutrality. We model equity premium such that the convexity premium pays for the liquidity cost of equity. We calibrate our equity premium model and report that the convexity premium counts for about 50 percent of our predicted equity premium. We find relevance of our non-risk convexity premium on the premium puzzle and anomalies in the stock market.
Keywords: Non-risk Convexity Premium, Equity Premium, Stock Market Anomaly,
General Equilibrium.
학회소식
[2011년 제 2차] Risk Premium and Convexity Premium In the Stock Ret
작성자 : 관리자
조회수 : 937
게시일 :
2011-06-03
