Return Predictability And Stock Market Crashes In A Simple Rational Expectations Model
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| Total Pages | : |
| Release | : 2005 |
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This paper presents a simple rational expectations model of intertemporal asset pricing. It shows that 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. -- Aggregate relative risk aversion ; Equilibrium asset price processes ; Excess Volatility ; Return predictability ; Stock market crashes
| Author | : Harold L. Vogel |
| Publisher | : Springer |
| Total Pages | : 508 |
| Release | : 2018-08-16 |
| Genre | : Business & Economics |
| ISBN | : 3319715283 |
Economists broadly define financial asset price bubbles as episodes in which prices rise with notable rapidity and depart from historically established asset valuation multiples and relationships. Financial economists have for decades attempted to study and interpret bubbles through the prisms of rational expectations, efficient markets, and equilibrium, arbitrage, and capital asset pricing models, but they have not made much if any progress toward a consistent and reliable theory that explains how and why bubbles (and crashes) evolve and can also be defined, measured, and compared. This book develops a new and different approach that is based on the central notion that bubbles and crashes reflect urgent short-side rationing, which means that, as such extreme conditions unfold, considerations of quantities owned or not owned begin to displace considerations of price.
| Author | : Harold L. Vogel |
| Publisher | : Springer Nature |
| Total Pages | : 619 |
| Release | : 2021-12-17 |
| Genre | : Business & Economics |
| ISBN | : 3030791823 |
Economists broadly define financial asset price bubbles as episodes in which prices rise with notable rapidity and depart from historically established asset valuation multiples and relationships. Financial economists have for decades attempted to study and interpret bubbles through the prisms of rational expectations, efficient markets, equilibrium, arbitrage, and capital asset pricing models, but they have not made much if any progress toward a consistent and reliable theory that explains how and why bubbles (and crashes) evolve and are defined, measured, and compared. This book develops a new and different approach that is based on the central notion that bubbles and crashes reflect urgent short-side rationing, which means that, as such extreme conditions unfold, considerations of quantities owned or not owned begin to displace considerations of price.
| Author | : Jeremy Hammond |
| Publisher | : |
| Total Pages | : 108 |
| Release | : 1989 |
| Genre | : Stock Market Crash, 1987 |
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| Author | : Fredj Jawadi |
| Publisher | : Springer |
| Total Pages | : 214 |
| Release | : 2018-11-30 |
| Genre | : Business & Economics |
| ISBN | : 3319987143 |
Written in honor of Emeritus Professor Georges Prat (University of Paris Nanterre, France), this book includes contributions from eminent authors on a range of topics that are of interest to researchers and graduates, as well as investors and portfolio managers. The topics discussed include the effects of information and transaction costs on informational and allocative market efficiency, bubbles and stock price dynamics, paradox of rational expectations and the principle of limited information, uncertainty and expectation hypotheses, oil price dynamics, and nonlinearity in asset price dynamics.
| Author | : David M. Frankel |
| Publisher | : |
| Total Pages | : 27 |
| Release | : 2005 |
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A theory is developed that explains how the stock market can crash in the absence of news about fundamentals, and why crashes are more common than frenzies. A crash occurs via the interaction of rational and naive investors. Naive traders believe in a simple (but reasonable) statistical model of stock prices: that prices follow a random walk with serially correlated volatility. They predict future volatility adaptively, as a weighted average of past squared price changes. From time to time, the rational traders sharply lower their demand for stocks, causing prices to fall below fundamentals. This raises naive investors' assessment of future volatility. Since naive traders are risk averse, their demand for stocks falls. This lowers the market's risk-bearing ability after the crash. Anticipating this, a rational trader has no incentive to bid up prices on the day of the crash. Unlike other explanations of market crashes, this mechanism is fundamentally asymmetric: the price of stocks cannot exceed fundamentals, so frenzies or bubbles cannot occur.
| Author | : Frank Hahn |
| Publisher | : Springer |
| Total Pages | : 190 |
| Release | : 1992-03-03 |
| Genre | : Business & Economics |
| ISBN | : 1349124923 |
The virtues and failings of market economies are at present widely debated and the outcome of the debate is of practical importance. This book contains essays that address these issues of economic policy ranging from privatisation of industry and financial markets to education and the proposal for an internal market in the health service. Apart from two theoretical pieces, particular markets, and proposals for creating such markets, are studied. The contributors are distinguished specialists in their field of economics and their analysis offers important lessons for social and political philosophy and will generate considerable interest.
| Author | : John H. Cochrane |
| Publisher | : Now Publishers Inc |
| Total Pages | : 117 |
| Release | : 2005 |
| Genre | : Business & Economics |
| ISBN | : 1933019158 |
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
| Author | : Victor Odour |
| Publisher | : Grin Publishing |
| Total Pages | : 40 |
| Release | : 2014-02 |
| Genre | : |
| ISBN | : 9783656588146 |
Document from the year 2011 in the subject Business economics - Investment and Finance, grade: A, California State University, East Bay, language: English, abstract: The objective of this study is to structure a dependable model to forecast the timing of entry and exit from the stock markets by using multivariate linear regression analysis. The study uses major macroeconomic indicators such CPI, PPI, GDP, MEI as independent variables and the S&P 500 index value as the dependent variable. The sample consists of 30 years of monthly data. This study includes four different loss scenarios in the S&P 500 index value and analyzes the data to see if the losses can be absorbed or if further losses will occur. This report discusses the practical implications of using regression analysis and how it is used to predict the market movements. This paper concludes that our regression model can help an investor to anticipate market movements and thus make appropriate buy and sell decisions.
| Author | : Gadi Barlevy |
| Publisher | : |
| Total Pages | : 24 |
| Release | : 1998 |
| Genre | : Financial crises |
| ISBN | : |
