Consumer Asset Pricing Model Based on Heterogeneous Consumers and the Mystery of Equity Premium

Yu Yan and Yiming Wang

MPRA Paper from University Library of Munich, Germany

Abstract: As one of the core models of finance, the consumer capital asset pricing model (CCAPM) has produced the puzzle of equity premium. In order to explain this problem and get a more realistic pricing formula, this paper uses constant absolute risk aversion coefficient (Cara) utility function and introduces heterogeneous consumers to improve the original model, and finally gets a more effective form and there is no original puzzle in this form. At the end of the article, the American data are used to verify the results. The regression results support this model very well.

Keywords: CAPM; CARA; puzzle of equity premium (search for similar items in EconPapers)
JEL-codes: G00 (search for similar items in EconPapers)
Date: 2020-02-05
New Economics Papers: this item is included in nep-fmk and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:98506

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