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Political Uncertainty and Risk Premia / Lubos Pastor, Pietro Veronesi.
- Format:
- Book
- Author/Creator:
- Pastor, Lubos.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w17464.
- NBER working paper series no. w17464
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2011.
- Summary:
- We develop a general equilibrium model of government policy choice in which stock prices respond to political news. The model implies that political uncertainty commands a risk premium whose magnitude is larger in weaker economic conditions. Political uncertainty reduces the value of the implicit put protection that the government provides to the market. It also makes stocks more volatile and more correlated, especially when the economy is weak. We find empirical evidence consistent with these predictions.
- Notes:
- Print version record
- September 2011.
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