TY  - JOUR
AU  - Lewis, Karen K
AU  - Liu, Edith X
TI  - Disaster Risk and Asset Returns: An International Perspective
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23065
PY  - 2017
Y2  - January 2017
DO  - 10.3386/w23065
UR  - http://www.nber.org/papers/w23065
L1  - http://www.nber.org/papers/w23065.pdf
N1  - Author contact info:
Karen K. Lewis
Department of Finance, Wharton School
2300 SHDH
University of Pennsylvania
Philadelphia, PA 19104-6367
Tel: 215/898-7637
Fax: 215/898-6200
E-Mail: lewisk@wharton.upenn.edu

Edith Liu
Federal Reserve Board of Governors
20st & Constitution Ave NW
Washington, DC 20551
Tel: 2024523913
E-Mail: edith.x.liu@frb.gov
M1  - published as Karen K. Lewis, Edith X. Liu. "Disaster Risk and Asset Returns: An International Perspective," in Richard Clarida, Lucrezia Reichlin, and Michael Devereux, organizers, "NBER International Seminar on Macroeconomics 2016" Journal of International Economics, Volume 108, Supp. 1 (Elsevier) (2017)

M3  - presented at "International Seminar on Macroeconomics - Hosted by Sofia University", June 24-25, 2016
AB  - 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 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.
ER  -