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Can Time-Varying Risk of Rare Disasters Explain Aggregate Stock Market Volatility?

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  • JESSICA A. WACHTER

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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  • Jessica A. Wachter, 2013. "Can Time-Varying Risk of Rare Disasters Explain Aggregate Stock Market Volatility?," Journal of Finance, American Finance Association, vol. 68(3), pages 987-1035, June.
  • Handle: RePEc:bla:jfinan:v:68:y:2013:i:3:p:987-1035
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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