Bubbles, Crashes and Risk

In an asset-pricing model, risk-averse agents need to forecast the conditional variance of a stock's return. A near-rational restricted perceptions equilibrium exists in which agents believe prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate risk in real time, recurrent bubbles and crashes can arise. These effects are stronger when agents allow for ARCH in excess returns.

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Year of publication:	2013-03-20
Authors:	Branch, William A. ; Evans, George W.
Institutions:	Centre for Dynamic Macroeconomic Analysis, University of St. Andrews
Subject:	Risk \| asset pricing \| bubbles \| adaptive learning

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Extent:	application/pdf
Series:	CDMA Working Paper Series.
Type of publication:	Book / Working Paper
Notes:	Number 201306
Classification:	G12 - Asset Pricing ; G14 - Information and Market Efficiency; Event Studies ; D82 - Asymmetric and Private Information ; D83 - Search, Learning, Information and Knowledge
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010904149