Seminar: Alexandre Jeanneret, HEC Montréal

The Dynamics of the Equity Risk Premium 

Alexandre Jeanneret
HEC Montreal

Date: February 14, 2014
Time: 10:00 am - 11:30 am
Location: Room 002

Abstract: 

This paper studies the dynamics of the equity risk premium through the lens of a consumption-based structural model. The economy consists of heterogeneous firms that choose their optimal default policy and capital structure in presence of agency conflicts. Firms refinance dynamically and exhibit time variation in financial leverage and default risk. We bring the model to the data and estimate a model-implied monthly measure of equity risk premium at the market level over the period 1929-2012. We find that the equity risk premium equals to 1.84% on average, is countercyclical, and varies with financial and economic uncertainty. The equity risk premium also depends on past default and refinancing clusters and eventually helps predict future excess stock returns.

For more information, please contact Karen Robertson at: karen.robertson [at] mcgill.ca.