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The Spirit of Capitalism and the Equity Premium

Author

Listed:
  • Qin Wang

    (The Wang Yanan Institute for Studies in Economics, Xiamen University)

  • Yiheng Zou

    (The Wang Yanan Institute for Studies in Economics, Xiamen University)

  • Yu Ren

    (The Wang Yanan Institute for Studies in Economics, Xiamen University)

  • Zhuo Huang

    (National School of Development, Peking University)

Abstract

This paper evaluates whether the spirit of capitalism can explain the equity premium puzzle. The spirit of capitalism implies that investors acquire wealth not just for consumption, but also to improve their social status. We set up a consumption-based capital asset pricing model incorporating this component. The simulated results from our calibrated model match the mean and the volatility of the equity premium observed in the data.

Suggested Citation

  • Qin Wang & Yiheng Zou & Yu Ren & Zhuo Huang, 2015. "The Spirit of Capitalism and the Equity Premium," Annals of Economics and Finance, Society for AEF, vol. 16(2), pages 493-513, November.
    • Handle: RePEc:cuf:journl:y:2015:v:16:i:2:wangzou
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    References listed on IDEAS

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    More about this item

    Keywords

    Spirit of capitalism; Consumption-based capital asset pricing model;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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