SOLVING ASSET RETURN PUZZLES BY FORCE OF PARAMETER UNCERTAINTY: A MIXTURE-OF-DISTRIBUTIONS APPROACH

• 영문명: SOLVING ASSET RETURN PUZZLES BY FORCE OF PARAMETER UNCERTAINTY: A MIXTURE-OF-DISTRIBUTIONS APPROACH
• 발행기관: 한국계량경제학회
• 저자명: 김영일(Young Il Kim)
• 간행물 정보: 『한국계량경제학회 학술대회 논문집』2009년 하계학술대회, 1~31쪽, 전체 31쪽
• 주제분류: 경제경영 > 경제학
• 파일형태: PDF
• 발행일자: 2009.08.30

영문 초록

I provide a potential solution to asset return puzzles as been noted in macrofinance literature since the seminal work of Mehra & Prescott (1985). It is well known that the standard consumption-based asset pricing model (Lucas 1978) leads to asset return puzzles such as high equity premium (6-8%) and low rikfree rate (1-2%) that are hard to explain with a reasonable degree of risk aversion in the CRRA utility function, which are commonly employed in macroeconomic literature. Hence, these puzzles raise critical questions for the common macroeconomic modeling exercise. I address these puzzles by showing that a non-Gaussian error distribution, perceived by the consumerinvestor due to the uncertain nature of parameters underlying the dividend process, can explain the historically high equity premium and low riskfree rate; thus, providing a potential solution to those puzzles. Mehra & Prescott (1985) find that about 0.35% is the maximum risk premium the standard C-CAPM can explain with a risk-free rate between 0 and 4% when the mean and standard deviation of consumption growth is assumed 1.8% and 3.6% respectively. I also take 1.8% mean and 3.6% standard deviation for consumption growth but explain 6-7% equity risk premium, 0.5-2% riskfree rate and 5-7% dividend yield with the risk aversion coefficient below 10 solely relying on negative skewness and leptokurtosis that can be derived from the stochastic nature of the uncertain (variance) parameter underlying the economy’s endowment process.

목차

1. Introduction

2. Consumption-based asset pricing in terms of the Moment Generating Function (MGF)

3. Parameter uncertainty, the MGF and the NIG distribution

4. Asset-pricing features with the NIG distribution

5. Asset-pricing features with Gaussian distribution

6. Simulation

7. Conclusion

키워드

equity premium puzzle riskfree rate puzzle consumption-based asset pricing parameter uncertainty mixture-of-distributions NIG distribution