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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

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/2739.

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Date of creation: Mar 2004
Date of revision:
Publication status: Published in Journal of Economic Theory, 2004, Vol. 115, no. 1. pp. 182-190.Length: 8 pages
Handle: RePEc:dau:papers:123456789/2739

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Web page: http://www.dauphine.fr/en/welcome.html
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Related research

Keywords: Cointegration; Return predictability; Sunspots;

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References

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  1. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1990. "Speculative Dynamics," NBER Working Papers 3242, National Bureau of Economic Research, Inc.
  2. 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.
  3. 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.
  4. Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
  5. Costas Azariadis & Shankha Chakraborty, 1998. "Asset price volatility in a nonconvex general equilibrium model," Economic Theory, Springer, vol. 12(3), pages 649-665.
  6. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  7. 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.
  8. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
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Citations

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Cited by:
  1. 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.
  2. repec:hal:wpaper:halshs-00590568 is not listed on IDEAS
  3. Challe, Edouard, 2008. "Endogenous participation risk in speculative markets," Economics Papers from University Paris Dauphine 123456789/12877, Paris Dauphine University.
  4. Edouard Challe & Xavier Ragot, 2007. "Bubbles and self-fulfilling crises," PSE Working Papers halshs-00590568, HAL.

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