Federal Reserve Board of Governors
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Information about this author at RePEc
NBER Working Papers and Publications
|January 2017||Disaster Risk and Asset Returns: An International Perspective|
with Karen K. Lewis: w23065
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 cannot explain the range of equity premia and government bill rates nor the high degree of equity return correlation found in the data. Moreover, 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 t...
|July 2016||Disaster Risk and Asset Returns: An International Perspective|
with Karen K. Lewis
in NBER International Seminar on Macroeconomics 2016, Richard Clarida and Lucrezia Reichlin, organizers
|February 2012||International Consumption Risk Is Shared After All: An Asset Return View|
with Karen K. Lewis: w17872
International consumption risk sharing studies have largely ignored their models' counterfactual implications for asset returns although these returns incorporate direct market measures of risk. In this paper, we modify a canonical risk-sharing model to generate more plausible asset return behavior and then consider the effects on welfare gains. Matching the mean and variance of equity returns and the risk-free rate requires persistent consumption risk, leading to three main findings: (1) risk-sharing gains decrease as the ability to diversify persistent consumption risk decreases; (2) the international correlation of equity returns is high relative to the correlation of consumption and dividends, implying low diversification potential for persistent consumption risk; and (3) increasi...