The DOI matches its Crossref record; 57 of the 57 references it cites were found in a registry or an index.
Can Time‐Varying Risk of Rare Disasters Explain Aggregate Stock Market Volatility?
Abstract
Why is the equity premium so high, and why are stocks so volatile? Why are stock returns in excess of government bill rates predictable? This paper proposes an answer to these questions based on a time‐varying probability of a consumption disaster. In the model, aggregate consumption follows a normal distribution with low volatility most of the time, but with some probability of a consumption realization far out in the left tail. The possibility of this poor outcome substantially increases the equity premium, while time‐variation in the probability of this outcome drives high stock market volatility and excess return predictability.
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Cites
Conditional Heteroskedasticity in Asset Returns: A New Approach
Nelson, D. B. (1991) · Econometrica · doi:10.2307/2938260 · Cited by 10,236
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By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior
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Epstein, L. G., & Zin, S. E. (1989) · Econometrica · doi:10.2307/1913778 · Cited by 4,262
Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
Bansal, R., & Yaron, A. (2004) · The Journal of Finance · doi:10.1111/j.1540-6261.2004.00670.x · Cited by 4,242
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Cited by
Rare Disasters, Asset Prices, and Welfare Costs
Barro, R. J. (2009) · American Economic Review · doi:10.1257/aer.99.1.243 · Cited by 855
BOLLERSLEV, T., & TODOROV, V. (2011) · The Journal of Finance · doi:10.1111/j.1540-6261.2011.01695.x · Cited by 804
News implied volatility and disaster concerns
Manela, A., & Moreira, A. (2017) · Journal of Financial Economics · doi:10.1016/j.jfineco.2016.01.032 · Cited by 721
Investor rewards to environmental responsibility: Evidence from the COVID-19 crisis
Garel, A., & Petit-Romec, A. (2021) · Journal of Corporate Finance · doi:10.1016/j.jcorpfin.2021.101948 · Cited by 330
Climate risk: The price of drought
Huynh, T. D., Nguyen, T. H., & Truong, C. (2020) · Journal of Corporate Finance · doi:10.1016/j.jcorpfin.2020.101750 · Cited by 328
Metadata
- Authors
- WACHTER, J. A.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2013-05-20
- Volume
- 68
- Issue
- 3
- Pages
- 987-1035
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2553992319
- Cited by
- 910
- References
- 57
- FWCI
- 93.07
- Type
- journal article
- Language
- en
- Open access
- closed
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Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
