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Risks after Disasters: A Note on the Effects of Precautionary Saving on Equity Premiums

Author

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  • Shiba Suzuki

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.

Suggested Citation

  • Shiba Suzuki, 2009. "Risks after Disasters: A Note on the Effects of Precautionary Saving on Equity Premiums," Global COE Hi-Stat Discussion Paper Series gd08-040, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd08-040
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd08-040.pdf
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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.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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