Bubbles, crashes and risk

William Branch and George Evans

Economics Letters, 2013, vol. 120, issue 2, 254-258

Abstract: A restricted-perceptions equilibrium exists in which risk-averse agents believe stock prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate risk, bubbles and crashes arise. These effects are stronger when agents allow for ARCH in excess returns.

Keywords: Risk; Asset pricing; Bubbles; Adaptive learning (search for similar items in EconPapers)
JEL-codes: D82 D83 G12 G14 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:120:y:2013:i:2:p:254-258

DOI: 10.1016/j.econlet.2013.04.030

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