Can Small Fluctuations in Investors' Subjective Preferences Induce Large Volatility in Equity Prices?.

This paper focuses on the potential effects of small fluctuations in investors' subjective preferences (specifically, their discount factors and attitudes towards risk) on the volatility equity prices. We briefly summarize some of the arguments and evidence regarding the fluctuations in subjective preferences. Our analysis indicates that such fluctuations may have significant implications for understanding the volatility of prives of financial assets.