Financial Markets in the Face of the Apocalypse

Jędrzej Białkowski () and Ehud I. Ronn
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Jędrzej Białkowski: University of Canterbury, https://www.canterbury.ac.nz

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This paper brings together two strands of the literature: Quantifying the impact of apocalyptic risk on capital markets, and the correct computation of the equity risk premium. For the former, we use events in four countries during the Second World War to discern markets’ incorporation of information regarding the probability of an Armageddon for each country. We argue that past computations of the equity risk premium did not properly account for the financial implications of political collapse on property/civil/human rights. Accordingly, we show that past calculations overstated the equity risk premium. We provide an estimate of the equity risk premium that is corrected for lack of basic rights, demonstrating the important changes in this estimate over time.

Keywords: Rare (“black swan”) events; Equity premium; International political crises; property, civil, and human rights; World War II (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2016-04-25
New Economics Papers: this item is included in nep-fmk, nep-his and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:16/14

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