The Equity Premium Puzzle in China

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Ni, Zhiqi (2006) The Equity Premium Puzzle in China. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

The dissertation concentrates on one of the most famous puzzles in asset pricing, the equity premium puzzle, which is first identified by Mehra and Prescott (1985). It studies the existence and extent of the equity premium puzzle in China, which is still under controversy according to the existing literature. The abundant theories and explanations put forward in the western markets about the puzzle are introduced and Chinese empirical data are used for testing the puzzle in the study.

The dissertation considers the time horizon of 1995 to 2005, altogether 11 years, which is the longest time horizon so far for the Chinese market, in order to generate a more comprehensive result. All the empirical data adopted and assumptions made are carefully justified. The result of this study shows that the equity premium puzzle in China is less evident than that in other countries. The extent of the puzzle is also lower than that suggested by some other Chinese scholars such as Liu and Wang (2005) and Liu and Chen (2005). When transaction costs are incorporated into the model, the relative degree of risk aversion of Chinese investors even falls below 10 (the upper boundary set by Mehra and Prescott (1985)), which suggests no evident equity premium puzzle in China. The results are then cross justified by qualitative analysis of the external market conditions and behavioral concerns related to the Chinese market.

Item Type: Dissertation (University of Nottingham only)
Keywords: EPP, Equity Premium Puzzle, China, Relative Degree of Risk Aversion
Depositing User: EP, Services
Date Deposited: 21 Dec 2006
Last Modified: 18 May 2018 13:32
URI: https://eprints.nottingham.ac.uk/id/eprint/20276

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