Long Run Risk Model and Equity Premium Puzzle in Thailand

Authors

  • Sartja Duangchaiyoosook Research Institute for Policy Evaluation and Design University of the Thai Chamber of Commerce, Bangkok, Thailand
  • Weerachart T. Kilenthong Research Institute for Policy Evaluation and Design University of the Thai Chamber of Commerce, Bangkok, Thailand

Keywords:

equity premium puzzle, long-run risk model, long-run component risk, asset pricing, generalized method of moments

Abstract

This paper shows that the long-run risk model of Bansal and Yaron (2004) can potentially solve the equity premium and risk-free rate puzzles in Thailand. In particular, the calibrated values of the risk aversion and the elasticity of intertemporal substitution are empirically plausible. Risk decomposition results indicate that both short-run and long-run risks are equally important risk components relevant to asset prices in Thai financial markets while news regarding economic uncertainty, represented by volatility risk, have only an inconsequential impact.

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Published

2022-03-31