The Analysis Model Of Equity Premium And Empirical Application Based On Quantile Utility

Over the past decade, the significant development of financial theory was associated with asset pricing, whereas the interpretation of the "equity premium puzzle" was a hot topic of asset pricing as well as the most important part of studying asset pricing theory. Having proposed the "equity premium puzzle" by Mehra and Prescott (1985), a multitude of domestic and foreign researchers attempted to explain this anomaly, however, the studied conclusions were varies, and even some results attained negative premium.Modifying the utility function was a major aspect of considering the equity premium broad. In order to explain whether there exist equity premium in securities market of China, most of domestic scholars had also done a great deal of research work. This paper used the method of combing the theoretical analysis with empirical research to study the equity premium and some related problems. For the fact that quantiles could characterize investors’attitude to the risk, to begin with, we introduce the asset pricing principles and methods based on the benchmark of quantile utility maximization systematically, which proposed by Giovannetti(2011,2013), taking and continuing to inspire scholars extensive research interests. This dissertation considers and tracks the core principle of the theories and key methods carefully; some indepth simulation and empirical studies are conducted. Given that, followed by quantile utility maximum as our optimization object to analyze the equity premium. In this vein, we try to explore whether there has equity premium in Chinese stock market. The results indicate that the equity premium would become lower while the quantile closer to 1-viz., the investors are more risk preference (or the risk aversion is smaller). What’s more, we discuss the premium equations (4.4) and (4.15) under the framework of macroeconomic uncertainty. We also present the estimating and testing methods to analyze the equity premium models, including Quantile Regression (QR) method, method based-on moments (SMM, IdIn, EMM) and Generalized Method of Moments (GMM), from the results we found, the model passed the statistics test and model diagnosis, the parameters’estimated errors are anticipate. Finally, the parameters’asymptotic properties and distributions are derived.In asset pricing researched especially the equity premium studied, rare economics theory pursuers’constructed mathematical model and carried out some simulation studies from the point of quantile utility principle, and sought modern statistical methods comprising quantile regression method to the applications of empirical analysis. For the interest of the equity premium researched, we make a preliminary tough attempting based on quantile regression method and modern microeonomic theories with the mechanism of quantile utility in this study, which provides an instructive case study for the future explorers from this point of view. In empirical research aspect, combing quantile utility theory with quantile regression method, analyzing the consumption behavior and investment decisions in theoretical under the premise of maximizing the agent’s quantile utility function. Using the historical macroeconomic datum to investigate the model, and achieve the simulation curve of equity risk premium while the interval of quantile is from 0.485 to unity. The simulation results show that the equity risk premium would decrease when the quantile becomes increasing. This conclusion is akin to Damodaran (2012), who proved that the equity risk premium would become lower when the investors’risk aversion level got smaller. For the model estimation, when the moment conditions are three and one, the maximum quantile utility are 3.66614 and 3.798641 respectively, in which the premium calculates optimal objective values for 25.58% and 24.44%, where the difference of our results (23.72%) by calculating the macroeconomic variables (annual) isn’t large. This paper also analyze the consumers’ dynamic optimal dedecision-making process under the utility with time couldn’t add and separate as well as summarize some briefly conclusions finally.