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The Market Risk Premium Model Theory Study

In: Proceedings of the 2022 4th International Conference on Economic Management and Cultural Industry (ICEMCI 2022)

Author

Listed:
  • Minrui Fan

    (Pennon school)

Abstract

Stock market risk premiums not only influence corporate finance and investment management decisions but also serve as key inputs for numerous financial theory models. A deeper and more comprehensive knowledge of equity risk premiums has emerged as a result of developments in the theoretical research on equity premiums conducted in the West. One of the most active areas of research expands on the standard model's excessively robust assumptions to explore why the standard C-CAPM model does not adequately explain the reality premium. Through the use of several instances and financial data, the author of this essay investigates the feasibility of developing a risk premium prediction model based on risk predictability. The outcomes of several attempts demonstrate the significance of the risk premium prediction models built using a fair selection of indicators, as well as the satisfactory theoretical performance of the dynamic trading strategies developed using the models. Dynamic trading techniques have not, however, been tested in real markets; as a result, this needs to be acknowledged and addressed in the upcoming study.

Suggested Citation

  • Minrui Fan, 2023. "The Market Risk Premium Model Theory Study," Advances in Economics, Business and Management Research, in: Hrushikesh Mallick & Gaikar Vilas B. & Ong Tze San (ed.), Proceedings of the 2022 4th International Conference on Economic Management and Cultural Industry (ICEMCI 2022), pages 2080-2085, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-098-5_233
    DOI: 10.2991/978-94-6463-098-5_233
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