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Can time-varying risk of rare disasters explain aggregate stock market volatility?

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  • Jessica Wachter

    (University of Pennsylvania)

Abstract

not allow the probabilities of rare disasters to vary over time. Rather, Gabaix assumes that the degree of the response of dividends to a consumption disaster varies over time; it is this variability that drives volatility in his model. This sharply contrasts with the driving force of stock market volatility in this paper: the changing risk of a rare disaster.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 944.

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Date of creation: 2008
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Handle: RePEc:red:sed008:944

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  17. Fran├žois Gourio, 2008. "Time-series predictability in the disaster model," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics wp2008-016, Boston University - Department of Economics.
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