Political uncertainty and risk premia

Volume: 110, Issue: 3, Pages: 520 - 545
Published: Dec 1, 2013
Abstract
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....
Paper Details
Title
Political uncertainty and risk premia
Published Date
Dec 1, 2013
Volume
110
Issue
3
Pages
520 - 545
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