The dynamics of crises and the equity premium

Arbeitspapier

There has been a considerable debate whether disaster models like Barro (2006) can rationalize the equity premium puzzle. This is because empirically disasters are not single extreme events, but tend to be 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, we show that in a model with recursive preferences our new channel generates a large equity risk premium even if the consumption drops are assumed to be of moderate size.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: SAFE Working Paper ; No. 11

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Crises ; Asset Pricing; Trading Volume; Bond Interest Rates
• Thema: General Equilibrium ; Asset Pricing ; Recursive Preferences ; Long-run Risk ; Short-run Risk

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Branger, Nicole ; Kraft, Holger ; Meinerding, Christoph
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (wo): Frankfurt a. M.
• (wann): 2014

Weitere Informationen

• DOI: doi:10.2139/ssrn.1633480
• Handle: http://hdl.handle.net/10419/203267
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ