Learning and asset-price jumps

Published

Journal Article

We develop a general equilibrium model in which income and dividends are smooth but asset prices contain large moves (jumps). These large price jumps are triggered by optimal decisions of investors to learn the unobserved state. We show that learning choice is determined by preference parameters and the conditional volatility of income process. An important model prediction is that income volatility predicts future jump periods, while income growth does not. Consistent with the model, large moves in returns in the data are predicted by consumption volatility but not by consumption growth. © 2011 The Authors.

Full Text

Duke Authors

Cited Authors

  • Bansal, R; Shaliastovich, I

Published Date

  • August 1, 2011

Published In

Volume / Issue

  • 24 / 8

Start / End Page

  • 2738 - 2780

Electronic International Standard Serial Number (EISSN)

  • 1465-7368

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/hhr023

Citation Source

  • Scopus