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Sunspots and predictable asset returns

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  • Challe, Edouard

Abstract

This paper uses a stylised asset-pricing model to show that sunspots may cause asset returns to be predictable, a widely documented feature of many speculative markets. This result parallels and extends previous works showing that sunspots render asset prices excessively volatile.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 115 (2004)
Issue (Month): 1 (March)
Pages: 182-190

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Handle: RePEc:eee:jetheo:v:115:y:2004:i:1:p:182-190

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Web page: http://www.elsevier.com/locate/inca/622869

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References

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  1. Costas Azariadis & Shankha Chakraborty, 1998. "Asset price volatility in a nonconvex general equilibrium model," Economic Theory, Springer, vol. 12(3), pages 649-665.
  2. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1991. "Speculative Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 529-46, May.
  3. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  4. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June.
  5. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
  6. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
  7. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
  8. Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 37-55, November.
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Cited by:
  1. Challe, Edouard, 2008. "Endogenous participation risk in speculative markets," Economics Papers from University Paris Dauphine 123456789/12877, Paris Dauphine University.
  2. Challe Edouard & Ragot Xavier, 2011. "Bubbles and Self-Fulfilling Crises," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-38, May.
  3. Edouard Challe, 2005. "Endogenous Participation Rick in Speculative Markets," Money Macro and Finance (MMF) Research Group Conference 2005 90, Money Macro and Finance Research Group.
  4. repec:hal:wpaper:halshs-00590568 is not listed on IDEAS

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