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Cited by 998Financial Markets and Investment StrategiesStochastic processes and financial applicationsEconomic theories and models

The DOI matches its Crossref record; 1 of the 1 references it cites were found in a registry or an index.

Stock Market Overreactions to Bad News in Good Times: A Rational Expectations Equilibrium Model

Veronesi, Pietro·1999·Review of Financial Studies
DOI 10.1093/rfs/12.5.975
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Abstract

This article presents a dynamic, rational expectations equilibrium model of asset prices where the drift of fundamentals (dividends) shifts between two unobservable states at random times. I show that in equilibrium, investors' willingness to hedge against changes in their own “uncertainty” on the true state makes stock prices overreact to bad news in good times and underreact to good news in bad times. I then show that this model is better able than conventional models with no regime shifts to explain features of stock returns, including volatility clustering, “leverage effects,” excess volatility, and time-varying expected returns.

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Crossref · 10.1093/rfs/12.5.975

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Citations

Cites

Research works printed but not linked: 24

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  5. Campbell J. Y. , 1997, “Asset Prices, Consumption and the Business Cycle,” forthcoming in Taylor J. B. Woodford M. (eds.), The Handbook of Macroeconomics, North Holland, Amsterdam.
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  14. Glosten, 1993, “On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks,”, Journal of Finance, 58, 1779, 10.1111/j.1540-6261.1993.tb05128.x · DOI
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  19. Merton, 1980, “On Estimating the Expected Return on the Market: an Exploratory Investigation,”, Journal of Financial Economics, 8, 326, 10.1016/0304-405X(80)90007-0 · DOI
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  21. Shiller, 1984, “Stock Price and Social Dynamics,”, Brookings Papers in Economic Activity, 2, 457, 10.2307/2534436 · DOI
  22. Veronesi P. , 1997, “Stock Market Volatility in Regime Shift Models,” PhD. dissertation, Harvard University.
  23. Veronesi P. , 1999, “How Does Information Quality Affect Stock Returns? Results from a Dynamic Model of Learning,” CRSP Working Paper 462, University of Chicago; forthcoming in Journal of Finance.
  24. 10.2307/2298057 · DOI

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Metadata

Authors
Veronesi, P.
Affiliations
University of Chicago (US)
Corresponding author
Veronesi, Pietro
Venue
Review of Financial Studies
Publisher
Oxford University Press (OUP)
Published
1999-10
Volume
12
Issue
5
Pages
975-1007
ISSN
  • 0893-9454 (ISSN-L)
  • 1465-7368
DOI
10.1093/rfs/12.5.975
OpenAlex
W2098347405
Cited by
998
References
1
Citations by year
2026: 20 · 2025: 34 · 2024: 32 · 2023: 38 · 2022: 36 · 2021: 69 · 2020: 34 · 2019: 45 · 2018: 33 · 2017: 49 · 2016: 43 · 2015: 58 · 2014: 64 · 2013: 46 · 2012: 49
FWCI
24.61
Type
journal article
Language
en
Open access
closed
Locations
Review of Financial Studies (publishedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Economics, Econometrics and Finance › Finance › Stochastic processes and financial applications
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
Keywords
stock market overreaction, rational expectations equilibrium, tipping points, hedging, excess volatility, volatility clustering, leverage effect, time-varying expected returns, asset pricing

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