Persistent Crises and Levered Asset Prices

• 成果类型: Article
• 署名作者: Kuehn, Lars-Alexander; Schreindorfer, David; Schulz, Florian
• 署名单位: Carnegie Mellon University; Arizona State University; Arizona State University-Tempe; University of Washington; University of Washington Seattle
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhac081
• 发表日期: 2023
• 页码: 2571
• 关键词: EQUITY RISK PREMIUM; credit spreads; rare disasters; long-run; consumption; aversion; puzzles; default; MODEL; debt

摘要

This paper shows that standard disaster risk models are inconsistent with movements in stock market volatility and credit spreads during disasters. We resolve this shortcoming by incorporating persistent macroeconomic crises into a structural credit risk model. The model successfully captures the joint dynamics of aggregate consumption, financial leverage, and asset market risks, both unconditionally and during crises. Leverage strongly amplifies fundamental shocks by continuing to rise while crises endure. We structurally estimate the model and show that it replicates the firm-level implied volatility curve and its cross-sectional relation with observable proxies of default risk.