Arbeitspapier
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.
- Language
-
Englisch
- Bibliographic citation
-
Series: CFS Working Paper Series ; No. 589
- Classification
-
Wirtschaft
Asset Pricing; Trading Volume; Bond Interest Rates
Financial Crises
Financial Markets and the Macroeconomy
Interest Rates: Determination, Term Structure, and Effects
- Subject
-
asset pricing
disaster risk
price-dividend ratio
bond returns
- Event
-
Geistige Schöpfung
- (who)
-
Koulovatianos, Christos
Li, Jian
Weber, Fabienne
- Event
-
Veröffentlichung
- (who)
-
Goethe University Frankfurt, Center for Financial Studies (CFS)
- (where)
-
Frankfurt a. M.
- (when)
-
2017
- Handle
- URN
-
urn:nbn:de:hebis:30:3-437394
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Koulovatianos, Christos
- Li, Jian
- Weber, Fabienne
- Goethe University Frankfurt, Center for Financial Studies (CFS)
Time of origin
- 2017
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