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

  • JESSICA A. WACHTER

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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File URL: http://hdl.handle.net/10.1111/jofi.2013.68.issue-3
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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 68 (2013)
Issue (Month): 3 (06)
Pages: 987-1035

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Handle: RePEc:bla:jfinan:v:68:y:2013:i:3:p:987-1035
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