Risks after disasters: a note on the effects of precautionary saving on equity premiums
AbstractThis paper studies the effects on equity premiums of grisks after disastersh, which are defined as a sharp rise in volatility of real per capita GDP growth rates immediately following disasters. This paper makes three contributions. First, we analytically demonstrate that if and only if the degree of relative prudence is higher than 2, risks after disasters decrease equity premiums. Second, we find that the differences between equity premiums with and without risks after disasters are quantitatively significant. Third, equity premiums are still higher in the case of disaster than without a disaster.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 29 (2009)
Issue (Month): 1 ()
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Other versions of this item:
- Shiba Suzuki, 2009. "Risks after Disasters: A Note on the Effects of Precautionary Saving on Equity Premiums," Global COE Hi-Stat Discussion Paper Series gd08-040, Institute of Economic Research, Hitotsubashi University.
- G1 - Financial Economics - - General Financial Markets
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Hi-Stat Discussion Paper Series
d05-109, Institute of Economic Research, Hitotsubashi University.
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- Philip Merrigan & Michel Normandin, 1994. "Precautionary Saving Motives: An Assessment from U.K. Time Series of Cross-Sections," Cahiers de recherche CREFE / CREFE Working Papers 29, CREFE, Université du Québec à Montréal.
- Barro, Robert, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," Scholarly Articles 3208215, Harvard University Department of Economics.
- Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
- Suzuki, Shiba, 2012. "Stock market booms in economies damaged during World War II," Research in Economics, Elsevier, vol. 66(2), pages 175-183.
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