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 moderat
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.
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Metadaten
Author:Nicole Branger, Holger Kraft, Christoph Meinerding
URN:urn:nbn:de:hebis:30:3-343248
URL:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1633480
DOI:http://dx.doi.org/10.2139/ssrn.1633480
Parent Title (English):SAFE working paper series ; No. 11
Series (Serial Number):SAFE working paper series (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
Pagenumber: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
House of Finance (HoF)
Center for Financial Studies (CFS)
Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:G01 Financial Crises (Updated!)
G12 Asset Pricing; Trading volume; Bond Interest Rates
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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