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

Author

Listed:
  • Yan, Yu
  • Wang, Yiming

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.

Suggested Citation

  • Yan, Yu & Wang, Yiming, 2020. "Consumer Asset Pricing Model Based on Heterogeneous Consumers and the Mystery of Equity Premium," MPRA Paper 98506, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:98506
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    File URL: https://mpra.ub.uni-muenchen.de/98506/1/MPRA_paper_98506.pdf
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    More about this item

    Keywords

    CAPM; CARA; puzzle of equity premium;

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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