Multiple Trees Subject to Event Risk
59 Pages Posted: 8 Feb 2009 Last revised: 30 Jun 2009
Date Written: June 29, 2009
Abstract
We study an equilibrium asset pricing model with several Lucas (1978) trees subject to event risk, that is, the possibility that trees experience unexpected disasters. We exploit the market clearing mechanism, in the presence of multiple positive net supply assets, to show that the implications of disasters for some cash-flows extend to the valuation of seemingly unrelated ones. Price-dividend ratios, risk premia, credit-spreads depend on the share of aggregate supply of each tree, but the endogeneity of risk neutral probabilities of disaster implies that the asset pricing implications of event risk go beyond the effects analyzed by the 'multiple tree' literature so far.
Keywords: general equilibrium, event risk, disaster premia, credit-spread
JEL Classification: G12, G13, D51
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Consumption, Aggregate Wealth and Expected Stock Returns
By Martin Lettau and Sydney C. Ludvigson
-
Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
By Ravi Bansal and Amir Yaron
-
Dividend Yields and Expected Stock Returns: Alternative Procedures for Interference and Measurement
-
Resurrecting the (C)Capm: A Cross-Sectional Test When Risk Premia are Time-Varying
By Martin Lettau and Sydney C. Ludvigson
-
Stock Return Predictability: Is it There?
By Geert Bekaert and Andrew Ang
-
Stock Return Predictability: Is it There?
By Geert Bekaert and Andrew Ang
-
Resurrecting the (C)Capm: A Cross-Sectional Test When Risk Premia Wre Time-Varying
By Martin Lettau and Sydney C. Ludvigson