An edition of Variable rare disasters (2008)

Variable rare disasters

an exactly solved framework for ten puzzles in macro-finance

Variable rare disasters
Xavier Gabaix, Xavier Gabaix
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Last edited by MARC Bot
December 22, 2020 | History
An edition of Variable rare disasters (2008)

Variable rare disasters

an exactly solved framework for ten puzzles in macro-finance

"This paper incorporates a time-varying intensity of disasters in the Rietz-Barro hypothesis that risk premia result from the possibility of rare, large disasters. During a disaster, an asset's fundamental value falls by a time-varying amount. This in turn generates time-varying risk premia and thus volatile asset prices and return predictability. Using the recent technique of linearity-generating processes (Gabaix 2007), the model is tractable, and all prices are exactly solved in closed form. In the "variable rare disasters" framework, the following empirical regularities can be understood qualitatively: (i) equity premium puzzle (ii) risk-free rate-puzzle (iii) excess volatility puzzle (iv) predictability of aggregate stock market returns with price-dividend ratios (v) value premium (vi) often greater explanatory power of characteristics than covariances for asset returns (vii) upward sloping nominal yield curve (viiii) a steep yield curve predicts high bond excess returns and a fall in long term rates (ix) corporate bond spread puzzle (x) high price of deep out-of-the-money puts. I also provide a calibration in which those puzzles can be understood quantitatively as well. The fear of disaster can be interpreted literally, or can be viewed as a tractable way to model time-varying risk-aversion or investor sentiment"--National Bureau of Economic Research web site.

Publish Date
Language
English

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Edition Availability
Cover of: Variable rare disasters
Variable rare disasters: an exactly solved framework for ten puzzles in macro-finance
2008, National Bureau of Economic Research
Electronic resource in English

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Book Details


Edition Notes

Title from PDF file as viewed on 6/6/2008.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.

Published in
Cambridge, MA
Series
NBER working paper series -- working paper 13724, Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13724.

Classifications

Library of Congress
HB1

The Physical Object

Format
Electronic resource

ID Numbers

Open Library
OL17088972M
LCCN
2008612482

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December 22, 2020 Edited by MARC Bot import existing book
July 29, 2012 Edited by VacuumBot Updated format '[electronic resource] :' to 'Electronic resource'
December 15, 2009 Edited by WorkBot link works
October 28, 2008 Edited by ImportBot Found a matching Library of Congress MARC record
September 27, 2008 Created by ImportBot Imported from Library of Congress MARC record