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PERSISTENT CATASTROPHIC SHOCKS AND EQUITY PREMIUMS: A NOTE

Published online by Cambridge University Press:  03 April 2013

Makoto Saito  and
Shiba Suzuki
Makoto Saito*
Affiliation:
Hitotsubashi University
Shiba Suzuki
Affiliation:
Meisei University
*
Address correspondence to Makoto Saito, Faculty of Economics, Hitotsubashi University, 2-1, Naka, Kunitachi, Tokyo, 186-8601, Japan; e-mail: makoto@econ.hit-u.ac.jp.
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Abstract

This note demonstrates analytically that a persistent catastrophic shock on endowment growth, even if moderate, yields negative equity premiums when a representative agent is relatively prudent. In particular, it derives the minimum persistence necessary to have zero equity premiums.

Keywords

Catastrophic ShocksPersistenceEquity Premiums
Type
Notes
Information
Macroeconomic Dynamics , Volume 18 , Issue 5 , July 2014 , pp. 1161 - 1171
Copyright
Copyright © Cambridge University Press 2013 

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