The Dynamics of Crises and the Equity Premium

• 成果类型: Article
• 署名作者: Branger, Nicole; Kraft, Holger; Meinerding, Christoph
• 署名单位: University of Munster; Goethe University Frankfurt; Goethe University Frankfurt
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhv057
• 发表日期: 2016
• 页码: 232
• 关键词: Stochastic differential utility; rare disasters; RISK; 20th-century; MARKETS; puzzles; explain; MODEL

摘要

It is a major challenge for asset pricing models to generate a high equity premium and a low risk-free rate while imposing realistic consumption dynamics. To address this issue, our paper proposes a novel pricing channel: we allow for consumption drops that can spark an economic crisis. This new feature generates a large equity premium even if possible consumption drops are of moderate size. In turn, our model also matches the consumption data of 42 countries along several dimensions. In particular, our approach generates a realistic number of crises that have realistic durations and involve clustering of moderate consumption drops.