Return Predictability and Stock Market Crashes in a Simple Rational Expectations Model

Franke, Günter; Lüders, Erik

Return Predictability and Stock Market Crashes in a Simple Rational Expectations Model

Dateien

06_05.pdfGröße: 367.58 KBDownloads: 380

Datum

2006

Autor:innen

Franke, Günter

Lüders, Erik

Open Access-Veröffentlichung

Open Access Green

Sammlungen

Wirtschaftswissenschaften

Publikationstyp

Working Paper/Technical Report

Publikationsstatus

Published

Zusammenfassung

This paper presents a simple rational expectations model of intertemporal asset pricing. It shows that state-independent heterogeneous risk aversion of investors is likely to generate declining aggregate relative risk aversion. This leads to predictability of asset returns and high and persistent volatility. Stock market crashes may be observed if relative risk aversion differs strongly across investors. Then aggregate relative risk aversion may sharply increase given a small impairment in fundamentals so that asset prices may strongly decline. Changes in aggregate relative risk aversion may also lead to resistance and support levels as used in technical analysis. For numerical illustration we propose an analytical asset price formula.

Fachgebiet (DDC)

330 Wirtschaft

Schlagwörter

Aggregate relative risk aversion, Equilibrium asset price processes, Return predictability, Stock market crashes, Excess Volatility

Zitieren

ISO 690

FRANKE, Günter, Erik LÜDERS, 2006. Return Predictability and Stock Market Crashes in a Simple Rational Expectations Model

BibTex

@techreport{Franke2006Retur-12106,
  year={2006},
  series={CoFE-Diskussionspapiere / Zentrum für Finanzen und Ökonometrie},
  title={Return Predictability and Stock Market Crashes in a Simple Rational Expectations Model},
  number={2006/05},
  author={Franke, Günter and Lüders, Erik}
}

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Universitätsbibliographie

Ja