Stock Market Volatility and Learning


Adam, Klaus ; Marcet, Albert ; Nicolini, Juan Pablo


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URL: https://ub-madoc.bib.uni-mannheim.de/31217
URN: urn:nbn:de:bsz:180-madoc-312174
Document Type: Working paper
Year of publication: 2012
The title of a journal, publication series: Working Paper Series
Volume: 12-06
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Internat. Wirtschaftsbeziehungen (Adam)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: G12 , D84,
Abstract: We study a standard consumption based asset pricing model with rational investors who entertain subjective prior beliefs about price behavior. Optimal behavior then dictates that investors learn about price behavior from past price observations. We show that this imparts momentum and mean reversion into the equilibrium behavior of the price dividend ratio, similar to what can be observed in the data. Estimating the model on U.S. stock price data using the method of simulated moments, we show that it can quantitatively account for the observed stock price volatility, the persistence of the price-dividend ratio, and the predictability of long-horizon returns. For reasonable degrees of risk aversion, the model also passes a formal statistical test for the overall goodness of fit, provided one excludes the equity premium from the set of moments to be matched.

Dieser Eintrag ist Teil der Universitätsbibliographie.

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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Adam, Klaus ; Marcet, Albert ; Nicolini, Juan Pablo (2012) Stock Market Volatility and Learning. Open Access Working Paper Series Mannheim 12-06 [Working paper]
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