Do Consumption Habit and Income Difference Eliminate the Risk Premium in Chinese Capital Market?

Yajie Wang, Zhongyuan Geng and Wuting Yang

The Developing Economies, 2019, vol. 57, issue 2, 99-124

Abstract: This paper explores the effects of Chinese urban residents' consumption habits with income differences on financial asset pricing over the period 1991–2016. With the use of generalized method of moments estimation, the results reveal that the specific values of habit‐formation parameter k eliminate the high‐risk premium puzzle in the standard consumption‐based Capital Asset Pricing Model to a certain extent based on the data of consumption of urban residents at different income levels, the rate of total stock market return, and the risk‐free asset return rate. Moreover, the empirical tests also uncover income differences that cannot explain the risk premium themselves but do reveal that people with different income levels have different attitudes toward risks.

Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/deve.12195

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:deveco:v:57:y:2019:i:2:p:99-124

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0012-1533

Access Statistics for this article

The Developing Economies is currently edited by Katsuji Nakagane

More articles in The Developing Economies from Institute of Developing Economies Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().