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

  • Shiba Suzuki

    ()

    (Hitotsubashi University)

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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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. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  2. Masahiro Hori & Satoshi Shimizutani, 2006. "Did Japanese consumers become more prudent during 1998-1999? Evidence from household-level data," International Economic Journal, Taylor & Francis Journals, vol. 20(2), pages 197-209.
  3. 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.).
  4. Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
  5. 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.
  6. Francois Gourio, 2008. "Disasters and Recoveries," American Economic Review, American Economic Association, vol. 98(2), pages 68-73, May.
  7. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  8. Barro, Robert, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," Scholarly Articles 3208215, Harvard University Department of Economics.
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