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The Equity Premium Puzzle Based on a Jump-Diffusion Model

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Listed:
  • Fanchao Zhou
  • Yanyun Li
  • Jun Zhao
  • Peibiao Zhao

Abstract

Gong and Zou [1] studied and explained the equity premium puzzle with the domestic output process satisfying a diffusion stochastic differential equation. In this paper, we further study and arrive at a positive solution of the equity premium puzzle based on the domestic output process satisfying a jump-diffusion stochastic differential equation. The conclusions obtained here can be regarded as a natural generalizationof the work by Gong and Zou [1].JEL classification numbers: B26; D53; E17Keywords: The equity premium puzzle; The spirit of capitalism; Jump; The stochastic growth model

Suggested Citation

  • Fanchao Zhou & Yanyun Li & Jun Zhao & Peibiao Zhao, 2018. "The Equity Premium Puzzle Based on a Jump-Diffusion Model," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(3), pages 1-7.
    • Handle: RePEc:spt:apfiba:v:8:y:2018:i:3:f:8_3_7
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    References listed on IDEAS

    as
    1. Gong, Liutang & Zou, Heng-fu, 2002. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 247-270, February.
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    More about this item

    Keywords

    the equity premium puzzle; the spirit of capitalism; jump; theâ stochastic growth model;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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