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| Author: | Berkman, H. Jacobsen, B. Lee, J.B. |
| Title: | Time-varying rare disaster risk and stock returns |
| Journal: | Journal of Financial Economics
2011 : AUG, VOL. 101:2, p. 313-332 |
| Index terms: | volatility disasters risk crises international politics consumption equities stock returns |
| Language: | eng |
| Abstract: | This study offers empirical support for theoretical models allowing for time-varying rare disaster risk. Based on a database of 447 international political crises during the period 1918-2006, a crisis index showing substantial variation over time is created. Shifts in this crisis index, our proxy for changes in perceived disaster likelihood, have a substantial impact on both the mean and volatility of world stock market returns. Crisis risk correlates positively with the earningsĀprice ratio and the dividend yield. Cross-sectional tests also indicate that crisis risk is priced: more crisis risk sensitive industries yield higher returns. |
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