High equity premia and crash fears
Subtitle: rational foundations
By: by Massimo Guidolin.
Contributors: Federal Reserve Bank of St. Louis.
Series: Working paper ;; 2005-011A; Working paper (Federal Reserve Bank of St. Louis : Online) ;; 2005-011A.
Publisher: Federal Reserve Bank of St. Louis
Published: 2005
Place of publication: [St. Louis, Mo.]
Language: eng
Format: Electronic resource
Subjects: Risk -- Econometric models.; Rate of return -- Econometric models.
Description: "We show that when in Lucas trees model the process for dividends is described by a lattice tree subject to infrequent but observable structural breaks, in equilibrium recursive rational learning may inflate the equity risk premium and reduce the risk-free interest rate for low levels of risk aversion.  The key condition for these results to obtain is the presence of sufficient initial pessimism.  The relevance of these findings is magnified by the fact that under full information our artificial economy cannot generate asset returns matching the empirical evidence for any positive relative risk aversion"--Federal Reserve Bank of St. Louis web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 6/24/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.