会议专题

Time Varying Pessimism,Rare Disasters and Stock Returns

  Recent financial literature has advocated the risk of rare disasters to explain the equity premium puzzle (Mehra and Prescott (1985)).This paper presents a model with rare consumption disasters,state uncertainty and uncertainty aversion to ex- plain a broad set of stylized facts about stock returns including (1) high equity premium,(2) volatile returns,(3) time-varying equity premia and volatility,(4) pre- dictability of returns,and (5) high variance risk premium.With a constant and extremely small ex-ante probability of a consumption disaster,uncertainty aversion substantially ampliˉes disaster probabilities perceived by investors and generates time-varying pessimism and risk of rare disasters.The two e?ects together drive high and countercyclical price of risk.

Equity premium puzzle rare disasters uncertainty aversion volatility

Hening Liu

University of Manchester

国际会议

2013 China Finance Review International Conference(第六届(2013)中国金融评论国际研讨会)

上海

英文

967-997

2013-07-08(万方平台首次上网日期,不代表论文的发表时间)