scholarly journals Crises and Recoveries in an Empirical Model of Consumption Disasters

2013 ◽  
Vol 5 (3) ◽  
pp. 35-74 ◽  
Author(s):  
Emi Nakamura ◽  
Jón Steinsson ◽  
Robert Barro ◽  
José Ursúa
Keyword(s):  
Stock Market ◽  
Empirical Model ◽  
Asset Prices ◽  
Equity Premium ◽  
Disaster Risk ◽  
Elasticity Of Substitution ◽  
Market Crashes

We estimate an empirical model of consumption disasters using new data on consumption for 24 countries over more than 100 years, and study its implications for asset prices. The model allows for partial recoveries after disasters that unfold over multiple years. We find that roughly half of the drop in consumption due to disasters is subsequently reversed. Our model generates a sizable equity premium from disaster risk, but one that is substantially smaller than in simpler models. It implies that a large value of the intertemporal elasticity of substitution is necessary to explain stock-market crashes at the onset of disasters. (JEL E21, E32, E44, G12, G14)

Macroeconomic Tail Risks and Asset Prices

2019 ◽  
Vol 33 (8) ◽  
pp. 3541-3582 ◽  
Author(s):  
David Schreindorfer
Keyword(s):  
Stock Market ◽  
Asset Prices ◽  
Equity Premium ◽  
Return Predictability ◽  
Risk Premiums ◽  
Asset Pricing Model ◽  
Oxford University ◽  
Excess Volatility ◽  
Equity Index ◽  
Published Paper

Abstract I document that dividend growth and returns on the aggregate U.S. stock market are more correlated with consumption growth in bad economic times. In a consumption-based asset pricing model with a generalized disappointment-averse investor and small, IID consumption shocks, this feature results in a realistic equity premium despite low risk aversion. The model is consistent with the main facts about stock market risk premiums inferred from equity index options, remains tightly parameterized, and allows for analytical solutions for asset prices. An extension with non-IID dynamics accounts for excess volatility and return predictability, while preserving the model’s consistency with option moments. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Salience and Asset Prices

2013 ◽  
Vol 103 (3) ◽  
pp. 623-628 ◽  
Author(s):  
Pedro Bordalo ◽  
Nicola Gennaioli ◽  
Andrei Shleifer
Keyword(s):  
Asset Pricing ◽  
Simple Model ◽  
Stock Market ◽  
Asset Prices ◽  
Equity Premium ◽  
Market Valuation ◽  
Market Returns ◽  
Stock Market Returns ◽  
Risky Assets ◽  
Very High

We present a simple model of asset pricing in which payoff salience drives investors' demand for risky assets. The key implication is that extreme payoffs receive disproportionate weight in the market valuation of assets. The model accounts for several puzzles in finance in an intuitive way, including preference for assets with a chance of very high payoffs, an aggregate equity premium, and countercyclical variation in stock market returns.

Irving Fisher and Financial Economics: The Equity Premium Puzzle, the Predictability of Stock Prices, and Intertemporal Allocation Under Risk

2007 ◽  
Vol 29 (2) ◽  
pp. 153-166 ◽  
Author(s):  
Robert W. Dimand
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Stock Prices ◽  
Equity Premium ◽  
Stock Market Crash ◽  
Net Worth ◽  
Jones Index ◽  
Market Crashes ◽  
Intertemporal Allocation ◽  
Premium Puzzle

Irving Fisher is renowned as the pundit who declared in October 1929 that stock prices appeared to have reached a permanently high plateau and who, having amassed a net worth of ten million dollars in the boom of the 1920s, proceeded to lose eleven million dollars of that fortune in the crash, which, as John Kenneth Galbraith (1977, p. 192) remarked, “was a substantial sum, even for an economics professor.” Along with the Dow-Jones index, Fisher's reputation for understanding financial markets declined relative to that of Roger Babson, the stock forecaster, amateur economist, and founder of Babson College, who presciently predicted the stock market crash of autumn 1929 (and, with less prescience, the stock market crashes of 1926, 1927, and 1928, and the stock market recovery of 1930). An editorial in The Commercial and Financial Chronicle (November 9, 1929) declared of Fisher: “The learned professor is wrong as he usually is when he talks about the stock market” (quoted by Galbraith 1972, p. 151).

Rational Panics and Stock Market Crashes

1999 ◽  
Author(s):  
Pietro Veronesi ◽  
Gadi Barlevy
Keyword(s):  
Stock Market ◽  
Market Crashes

scholarly journals Estimation of Parameters and Verification of Statistical Hypotheses for Gaussian Models of Stock Price

2016 ◽  
Vol 55 (1) ◽  
pp. 91-101
Author(s):  
Dmytro Marushkevych ◽  
Yevheniia Munchak
Keyword(s):  
Stock Market ◽  
Stock Price ◽  
Asset Prices ◽  
Estimation Of Parameters ◽  
Gaussian Models ◽  
Hurst Coefficient ◽  
Statistical Hypotheses

We construct models of asset prices on the Ukrainian stock market and analyse their applicability by checkingappropriate statistical hypotheses using actual observed data. We also analyse the presence of jumps in the dynamics ofdifferent assets and estimate the Hurst coefficient for the logarithm of the price of the asset by two different methods.

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