The equity premium in China

The equity premium is a key indicator in capital investment decisions. However, few studies estimate the equity premium for the Chinese stock market. To shed more light on the subject, we use dividend and consumption growth models to estimate the expected equity premium in China from 2005 to 2017. O...

Full description

Saved in:
Bibliographic Details
Published inApplied economics letters Vol. 27; no. 13; pp. 1112 - 1118
Main Authors Huang, Ping, Zhou, Zhong-Qiang, Zhang, Wei
Format Journal Article
LanguageEnglish
Published London Routledge 28.07.2020
Taylor & Francis LLC
Subjects
Capital investments
Comparative analysis
Consumption
consumption growth model
dividend growth model
Economic theory
Economics
Equity
Equity premium
Growth models
Securities markets
stock return
China
Online AccessGet full text

Cover

More Information
Summary:The equity premium is a key indicator in capital investment decisions. However, few studies estimate the equity premium for the Chinese stock market. To shed more light on the subject, we use dividend and consumption growth models to estimate the expected equity premium in China from 2005 to 2017. Our evidence shows that the geometric mean of the expected yearly equity premium from the consumption growth model, 9.69 percent, is similar to that of the realized yearly equity premium from stock returns, 8.11 percent. The corresponding values are 0.74-0.68 percent for monthly data, and 2.49-2.28 percent for quarterly data. In contrast, the estimate of the expected equity premium from the dividend growth model is far higher than the realized equity premium. However, both the dividend and consumption growth models fail to explain the high fluctuations of the realized equity premium.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2019.1673295