The Equity Premium Puzzle Based on a Jump-Diffusion Model

Fanchao Zhou, Yanyun Li, Jun Zhao and Peibiao Zhao

Journal of Applied Finance & Banking, 2018, vol. 8, issue 3, 7

Abstract: Gong and Zou [1] studied and explained the equity premium puzzle with the domestic output process satisfying a diffusion stochastic differential equation. In this paper, we further study and arrive at a positive solution of the equity premium puzzle based on the domestic output process satisfying a jump-diffusion stochastic differential equation. The conclusions obtained here can be regarded as a natural generalizationof the work by Gong and Zou [1].JEL classification numbers: B26; D53; E17Keywords: The equity premium puzzle; The spirit of capitalism; Jump; The stochastic growth model

Date: 2018
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