Disaster risk and asset returns: An international perspective

2Citations
Citations of this article
25Readers
Mendeley users who have this article in their library.

Abstract

Recent studies have shown that disaster risk can generate asset return moments similar to those observed in the U.S. data. However, these studies have ignored the cross-country asset pricing implications of the disaster risk model. This paper shows that standard U.S.-based disaster risk model assumptions found in the literature lead to counterfactual international asset pricing implications. Given consumption pricing moments, disaster risk from this literature cannot explain the range of equity premia and government bill rates. Furthermore, the independence of disasters presumed in some studies generates counterfactually low cross-country correlations in equity markets. Alternatively, if disasters are all shared, the model generates correlations that are excessively high. We show that common and idiosyncratic components of disaster risk are needed to explain the pattern in consumption and equity co-movements.

Cite

CITATION STYLE

APA

Lewis, K. K., & Liu, E. X. (2017). Disaster risk and asset returns: An international perspective. Journal of International Economics, 108, S42–S58. https://doi.org/10.1016/j.jinteco.2017.03.001

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free