IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v55y2023i6p603-616.html
   My bibliography  Save this article

Can COVID-19 solve the equity premium puzzle?

Author

Listed:
  • Messaoud Chibane

Abstract

We propose a new approach for estimating rare disaster event models where we only use U.S. national consumption data as an alternative to the ubiquitous Barro and Ursúa’s (2008, 2012) multi-country data set. We find that the 2020 COVID crisis unambiguously reveals the presence and significance of rare disasters in consumption dynamics. Using our estimated parameters and recursive preferences, our approach is able to solve the risk-free rate and equity premium puzzles without resorting to multi-country data in estimating the model. Our analysis shows that the severity of disasters is vastly underestimated in the U.S. and that more than 400 years of consumption data would be necessary to get an accurate estimate.

Suggested Citation

  • Messaoud Chibane, 2023. "Can COVID-19 solve the equity premium puzzle?," Applied Economics, Taylor & Francis Journals, vol. 55(6), pages 603-616, February.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:6:p:603-616
    DOI: 10.1080/00036846.2022.2092053
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2022.2092053
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2022.2092053?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:55:y:2023:i:6:p:603-616. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.