Market fragility and the paradox of the recent stock-bond dissonance
- After the Lehman-Brothers collapse, the stock index has exceeded its pre-Lehman-Brothers peak by 36% in real terms. Seemingly, markets have been demanding more stocks instead of bonds. Yet, instead of observing higher bond rates, paradoxically, bond rates have been persistently negative after the Lehman-Brothers collapse. To explain this paradox, we suggest that, in the post-Lehman-Brothers period, investors changed their perceptions on disasters, thinking that disasters occur once every 30 years on average, instead of disasters occurring once every 60 years. In our asset-pricing calibration exercise, this rise in perceived market fragility alone can explain the drop in both bond rates and price-dividend ratios observed after the Lehman-Brothers collapse, which indicates that markets mostly demanded bonds instead of stocks.
Author: | Christos Koulovatianos, Jian Li, Fabienne Weber |
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URN: | urn:nbn:de:hebis:30:3-437394 |
URL: | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3084155 |
Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 589 |
Series (Serial Number): | CFS working paper series (589) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2017 |
Year of first Publication: | 2017 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2017/12/12 |
Tag: | asset pricing; bond returns; disaster risk; price-dividend ratio |
Issue: | November 7, 2017 |
Page Number: | 38 |
HeBIS-PPN: | 424516446 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |