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Risks after disasters: a note on the effects of precautionary saving on equity premiums

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  • Shiba Suzuki

    ()
    (Hitotsubashi University)

Abstract

This paper studies the effects on equity premiums of grisks after disastersh, 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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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I1-P34.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 1 ()
Pages: 328-337

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Handle: RePEc:ebl:ecbull:eb-08g10020

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  1. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  2. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
  3. Masahiro Hori & Satoshi Shimizutani, 2005. "Did Japanese Consumers Become More Prudent During 1998-1999?: Evidence From Household Level Data," Hi-Stat Discussion Paper Series d05-109, Institute of Economic Research, Hitotsubashi University.
  4. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  5. Francois Gourio, 2008. "Disasters and Recoveries," American Economic Review, American Economic Association, vol. 98(2), pages 68-73, May.
  6. Merrigan, Philip & Normandin, Michel, 1996. "Precautionary Saving Motives: An Assessment from UK Time Series of Cross-Sections," Economic Journal, Royal Economic Society, vol. 106(438), pages 1193-1208, September.
  7. Barro, Robert, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," Scholarly Articles 3208215, Harvard University Department of Economics.
  8. Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
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Cited by:
  1. 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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