The Analysis On The Equity Premium Of American Post-war Based On External Habit Formation

It is very important to study the equity premium, promoting the development of capital market, predicting the macroeconomic trend, finding the level of stock price, judging how to use the hospitalization Insurance fund and social Insurance fund, instructing investors how to make the investment, guiding enterprise's financing etc. But the stock market of China, a new developing market, set up for more than ten years. There is a lot of difficulty to study the equity premium of the China's capital market. The capital market in U.S.A is comparatively perfect, so there is very important reference value for China to study American the equity premium.At first, the article analyses the consumption growth and the assets return, and finds out that the total consumption structure changes with time; the volatility of the stock return is much higher than the volatility of the bond return. Assuming that the market is complete, the article makes use of time-sepatable discrete-time dynamic model to analyse the equity premium. It adopts the habit formation model, in which the habit level results from a non-linear course which reflects value of consuming time. Maximizing the representative agent' utility, we receive a simple CCAPM and the riskless interest rate with time. As for demonstration analysis, by the data from 1948 to 2000, we use calibrating and dynamic comparing method and get proper parameter value, which make the relative risk aversion coefficient and the riskless interest rate keep in a proper range. Thus we resolve the equity premium puzzle and the riskless interest rate puzzle to a certain extent.Finally, this article draws two conclusions: there is negative relation between the equity premium and the covariance of consumption growth & stock returns, therefore the investors must expect higher returns for higher risk premium when the covariance of consumption growth and stock returns is bigger; the riskless interest rate has little range volatility over time, which accords with the real yield of 3 months bond of Ministry of Finance.