Maximum likelihood estimation of the equity premium

• 成果类型: Article
• 署名作者: Avdis, Efstathios; Wachter, Jessica A.
• 署名单位: University of Alberta; University of Pennsylvania; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2017.06.003
• 发表日期: 2017
• 页码: 589-609
• 关键词: EQUITY PREMIUM PUZZLE; Size puzzle; Return predictability

摘要

xThe equity premium the expected return on the aggregate stock market less the government bill rate - is of central importance to the portfolio allocation of individuals, to the investment decisions of firms, and to model calibration and testing. This quantity is usually estimated from the sample average excess return. We propose an alternative estimator, based on maximum likelihood, that takes into account information contained in dividends and prices. Applied to the postwar sample, our method leads to an economically significant reduction from 6.4% to 5.1%. Simulation results show that our method produces more reliable estimates under a wide range of specifications. (c) 2017 Elsevier B.V. All rights reserved.