The dynamics of crises and the equity premium
- There has been a considerable debate about whether disaster models can rationalize the equity premium puzzle. This is because empirically disasters are not single extreme events, but long-lasting periods in which moderate negative consumption growth realizations cluster. Our paper proposes a novel way to explain this stylized fact. By allowing for consumption drops that can spark an economic crisis, we introduce a new economic channel that combines long-run and short-run risk. First, we document that our model can match consumption data of several countries. Second, it generates a large equity risk premium even if consumption drops are of moderate size.
| Author: | Nicole BrangerORCiDGND, Holger KraftGND, Christoph MeinerdingORCiDGND |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-343248 |
| URL: | http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1633480 |
| DOI: | https://doi.org/10.2139/ssrn.1633480 |
| Parent Title (English): | SAFE working paper series ; No. 11 |
| Series (Serial Number): | SAFE working paper (11 [neue Version]) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2014 |
| Year of first Publication: | 2014 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2014/11/12 |
| Tag: | Asset Pricing; General Equilibrium; Long-run Risk; Recursive Preferences; Short-run Risk |
| Issue: | version: October 17, 2014 |
| Page Number: | 46 |
| Note: | Als SAFE working paper series ; No. 11 erschien schon 2013 u.d.T. "How does contagion affect general equilibrium asset prices?" urn:nbn:de:hebis:30:3-293819 |
| HeBIS-PPN: | 351081682 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
