EconPapers    
Economics at your fingertips  
 

Stock Market Volatility and Learning

Albert Marcet, Klaus Adam and Juan Pablo Nicolini

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: Introducing bounded rationality in a standard consumption-based asset pricing model with time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of price-dividend ratios, long-horizon return predictability and a risk premium, as in the habit model of Campbell and Cochrane (1999), but for lower risk aversion. This is obtained, even though our learning scheme introduces just one free parameter and we only consider learning schemes that imply small deviations from full rationality. The findings are robust to the learning rule used and other model features. What is key is that agents forecast future stock prices using past information on prices.

JEL-codes: D84 G12 (search for similar items in EconPapers)
Pages: 55
Date: 2008-01-25
New Economics Papers: this item is included in nep-bec, nep-cba, nep-cfn, nep-fmk and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35) Track citations by RSS feed

Downloads: (external link)
http://pareto.uab.es/wp/2008/73208.pdf (application/pdf)

Related works:
Journal Article: Stock Market Volatility and Learning (2016) Downloads
Working Paper: Stock Market Volatility and Learning (2015) Downloads
Working Paper: Stock Market Volatility and Learning (2014) Downloads
Working Paper: Stock Market Volatility and Learning (2012) Downloads
Working Paper: Stock Market Volatility and Learning (2011) Downloads
Working Paper: Stock market volatility and learning (2008) Downloads
Working Paper: Stock Market Volatility and Learning (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:732.08

Access Statistics for this paper

More papers in UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) Contact information at EDIRC.
Bibliographic data for series maintained by Xavier Vila ().

 
Page updated 2024-03-01
Handle: RePEc:aub:autbar:732.08