Risks after disasters: a note on the effects of precautionary saving on equity premiums
This paper studies the effects on equity premiums of risks after disasters, 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.
Volume (Year): 29 (2009)
Issue (Month): 1 ()
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- Masahiro Hori & Satoshi Shimizutani, 2006.
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- Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-1113, December. Full references (including those not matched with items on IDEAS)
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