RARE-DISASTERS, THE SPIRIT OF CAPITALISM, OVERSAVING, AND ASSET PRICING

Rare disasters become increasingly important for understanding asset pricing, and the spirit of capitalism has been successful in explaining various issues in economic growth, savings behavior, and asset pricing. However, pervious studies don’t reveal the connection of these two ideas. This paper tries to fill the gap in the literature and demonstrates the similarities in consumption decision making and savings behavior im-plied by models of rare disasters and spirit of capitalism, and analyzes interesting implications of this connection in asset pricing