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Uninsured expense shocks and equity premia

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  • Wang, Qin
  • Ren, Yu
  • Zou, Yiheng

Abstract

This paper analyzes the influences of uninsured expense shocks on the equity premium. We consider a consumption-based asset pricing model where agents face expected expense shocks. When the agents are hit by the shock, they have to consume all of their wealth and leave the financial markets. The numerical results from our calibrated model can match the mean equity premium, the mean risk-free rate, and the volatility of the equity premium observed in the data.

Suggested Citation

  • Wang, Qin & Ren, Yu & Zou, Yiheng, 2016. "Uninsured expense shocks and equity premia," Economic Modelling, Elsevier, vol. 58(C), pages 64-74.
    • Handle: RePEc:eee:ecmode:v:58:y:2016:i:c:p:64-74
    DOI: 10.1016/j.econmod.2016.05.009
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    More about this item

    Keywords

    Equity premium; Uninsured expense risk; CCAPM;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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