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Sunspots and predictable asset returns

  • Challe, Edouard

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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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
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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  1. James M. Poterba & Lawrence H. Summers, 1987. "Mean Reversion in Stock Prices: Evidence and Implications," NBER Working Papers 2343, National Bureau of Economic Research, Inc.
  2. 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.
  3. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1990. "Speculative Dynamics," NBER Working Papers 3242, National Bureau of Economic Research, Inc.
  4. 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.
  5. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  6. 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.
  7. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
  8. Costas Azariadis & Shankha Chakraborty, 1998. "Asset price volatility in a nonconvex general equilibrium model," Economic Theory, Springer, vol. 12(3), pages 649-665.
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