Download or read book Explaining Equity Risk Premium During Financial Crises written by Ming-Hsien Chen and published by . This book was released on 2013 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the dynamics among three non-equity factors, credit, illiquidity, and foreign exchange risks, and equity returns to explore the equity risk premium. Results from both VAR and EGARCHM models demonstrate that credit and liquidity risk premia and changes in exchange rates explain equity returns in Germany, Japan, the United Kingdom, and the United States during recent financial crises. More importantly, the traditional measure of the equity market risk premium ceases to be significant in explaining equity returns when these three non-equity factors are included in the model. Although its explaining power is significant in the US, its significant level is lower. Our results offer convincing evidence that these three non-equity factors explain the equity risk premium during financial crises.