earticle

영어

Our paper estimates expected returns on equity using the corporate yield and historical default experience in the bond market. This is done by reframing the Merton (1974) model in the context of the general equilibrium model such as the Ahn and Thompson (1988). By doing so, we account for systematic jump risk in estimating the expected return on equity and extend Cooper and Davydenko (2003) and Campello, Chen and Zhang (2006) to the case of systematic jump risk. We find that jump risk raises the expected return on equity without increasing the volatility of the firm value and our estimates fit quite well in the historical returns over the period of 1926-2005 in the U.S. capital market.