Empirical Study On The Equity Premium Of A Share Market From The Perspective Of Myopic Loss Aversion

Chinese stock market has been more than 20 years since it came into being,and its profit has been a hot topic.In the past years,many scholars have studied a lot in this field,they found that the average of the stock's yield is far outweigh the risk-free rate of market,this phenomenon is known as the "High equity premium problem".Based on the relevant financial theory,this paper analyzes the mechanism of myopic loss aversion on equity premium from two aspects of theory and empirical analysis,it can make up for the insufficiency of domestic research,and it is significant to both better analysis the equity premium in China and promoting the healthy development of Chinese securities market.First,this paper introduces the related research at home and abroad and the theoretical basis of behavioral finance.Previous studies mainly explained the high equity premium problem by changing the basic assumptions of classical theory,but they could not be explained comprehensively;The Prospect Theory and the Mental Accounting theory respectively internalize the concepts of "loss aversion" and "myopic",and lay the foundation for the proposition of myopic loss aversion.Secondly,this paper makes a comprehensive exposition of the equity premium in the A stock market,in order to clear the existence of the high equity premium problem.Using the HS300 index yield and the 3 month Shibor as the market return rate and risk-free interest rate of A shares,and analyze the annual equity premium between 2006 and 2016,the results show that the equity premium phenomenon of A shares has the characteristics of high premium and long term,which shows that there is a high equity premium problem in the A share market.Then,the paper theoretically analyzes two problems:How does myopic loss aversion lead to investor behavior biases and how investors' behavioral biases affect the equity premium,so as to establish a corresponding analysis framework.First,in the profit range and the loss range,myopic loss aversion affects the actual utility level of investors by influencing the investor's perception of stock price fluctuation and the investor's loss aversion coefficient,and result in behavioral biases;Second,the behavior bias of a large number of investors affects the supply and demand of the stock market,causes the fluctuation of the stock price,leads to the market risk aggravating,thus affects the share right premium level.After that,in the empirical analysis part,by means of statistical analysis and Grainger causality test,this paper analyzes and tests the myopic loss aversion in the A stock market and the links in the above two stages.The empirical results show that:(1)The loss aversion coefficient of A stock market is greater than 1,and the actual evaluation interval is only 1 weeks.It shows that the A stock market has the characteristics of myopia and loss aversion.(2)The functionary mechanism obtained by theoretical analysis is effective in the A share market:In the profit section,the evaluation interval is inversely related to the equity premium fluctuation,it shows that the frequent evaluation caused by myopic loss aversion makes investors feel more risk,and then reduce the actual utility level;In the loss section,the evaluation interval and the loss aversion coefficient of the investors show a reverse trend,it shows that the frequent evaluation of myopic loss aversion increases the loss aversion coefficient of investors,and then bring a reduction in their actual utility.Under the two conditions,the actual utility of investors will be reduced,which will lead to the deviation of the investors' behavior of selling stocks.Secondly,the econometric analysis shows that,A share turnover is Grainger's reason for market fluctuation,that means that the investor's trading behavior causes the stock price fluctuation in the market,and the market risk increases,which makes the market need to provide more return as risk compensation,thus resulting in the high equity premium.Finally,this paper analyzes and summarizes the inadequacies of the article,future research can continue to expand and improve on this basis.