TY  - UNPD
A1  - Branger, Nicole
A1  - Kraft, Holger
A1  - Meinerding, Christoph
T1  - How does contagion affect general equilibrium asset prices? : [Version: March 13, 2013]
T2  - SAFE working paper series ; No. 11
N2  - This paper analyzes the equilibrium pricing implications of contagion risk in a Lucas-tree economy with recursive preferences and jumps. We introduce a new economic channel allowing for the possibility that endowment shocks simultaneously trigger a regime shift to a bad economic state. We document that these contagious jumps have far-reaching asset pricing implications. The risk premium for such shocks is superadditive, i.e. it is 2.5\% larger than the sum of the risk premia for pure endowment shocks and regime switches. Moreover, contagion risk reduces the risk-free rate by around 0.5\%. We also derive semiclosed-form solutions for the wealth-consumption ratio and the price-dividend ratios in an economy with two Lucas trees and analyze cross-sectional effects of contagion risk qualitatively. We find that heterogeneity among the assets with respect to contagion risk can increase risk premia disproportionately. In particular, big assets with a large exposure to contagious shocks carry significantly higher risk premia.
T3  - SAFE working paper - 11 
KW  - Contagion
KW  - General Equilibrium
KW  - Asset Pricing
KW  - Recursive Preferences
Y1  - 2013
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29381
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-293819
UR  - http://ssrn.com/abstract=1633480
IS  - version: March 13, 2013
PB  - Goethe-Univ., House of Finance, Sustainable Architecture for Finance in Europe, SAFE
CY  - Frankfurt am Main
ER  -