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Unrealized return dispersion and the equity risk premium

Author

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  • Qiao, Kenan
  • Ji, Zhehan
  • Xie, Haibin

Abstract

This paper discusses how unrealized return dispersion across individuals affects the equity risk premium. We specify an intertemporal capital asset pricing model with heterogeneous preferences depending on investors’ unrealized returns and uncover that unrealized return dispersion negatively predicts the equity risk premium. An empirical study is performed on the Chinese stock market, and the results are consistent with the theoretical claims.

Suggested Citation

  • Qiao, Kenan & Ji, Zhehan & Xie, Haibin, 2023. "Unrealized return dispersion and the equity risk premium," Finance Research Letters, Elsevier, vol. 58(PA).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323006888
    DOI: 10.1016/j.frl.2023.104316
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    References listed on IDEAS

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    More about this item

    Keywords

    Disposition effect; Unrealized return dispersion; Equity risk premium;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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