Asset Pricing Model Based On Time-varying Risk Aversion Coefficient And Its Empirical Analysis

According to the reflection effect of the prospect theory,under the market-maker adjustment mechanism,two types of investors in the market(fundamentalists and trend followers)simultaneously introduce time-varying risk aversion coefficients,which expands the asset pricing model with fixed risk aversion under heterogeneous expectations.First,using the relevant theory of the difference equation,the equilibrium solution,stability and its bifurcation of the deterministic dynamic system are analyzed;along with the discussion of the dynamic behavior near the bifurcation boundary,the extended model can generate real price behavior near the Neimark-Sacher bifurcation boundary,due to the existence of random fixed points,the price dynamics of the stochastic system and deterministic system show similar characteristics when the deterministic difference system is stable.Then,based on t,he Monte Carlo simulations,the analysis of the interaction between the noise term and the fundamental deterministic system shows that the two noise processes play a key role in the price behavior and long-term dependence of the returns by the model,and the noise demand plays an important role in the autocorrelation of the returns,and the noisy fundamental process plays an important role in the autocorrelation of the absolute and the squared returns;Finally,a comparative analysis of the statistical characteristics of the returns of the model,He and Li(2016)[1]model,Shenzheng Chengzhi(399001),Shenzhen Composite Index(399106),Shanghai and Shenzhen 300(399300),other 308 Shenzhen Index and the two sets of stock samples in Shenzhen St,ock Exchange A shares(1373 and 1327 respectively).The results show that the extended model of this paper can better simulate the returns characteristics of China's stock market.