Return Predictability and Stock Market Crashes in a Simple Rational Expectations Model



provided by Research Papers in Economics


Return Predictability and Stock Market Crashes in
a Simple Rational Expectations Model
*

Girnter Franket and Erik LUders^

This draft: September 21, 2005

* We are grateful to Axel Adam-Mfiller, Yacine Ait-Sahalia, Yakov Amihud, Andrew
Ang, Menachem Brenner, Antonio Camara, Peter Carr, Damien Chabi-Yo, David Feld-
man, Stephen Figlewski, Jens Jackwerth, Tao Lin, Harris Schlesinger, Sophie Shive,
Siegfried Trautmann, Hongjun Yan and Robert Whitelaw for helpful discussions. We
also thank Jens Jackwerth for providing us data on empirical risk aversion functions.
Comments from seminar participants at the GEABA Meeting in Berlin, the Symposium
on Finance, Banking and Insurance in Karlsruhe, the MFA 2003 Meeting in St. Louis, the
EFA 2003 Meeting in Lake Buena Vista, the 2003 Meeting of the Verein fuir Socialpolitik
in Zurich, the FMA 2003 Meeting in Denver, the NFA 2003 Meeting in Quebec, the EFMA
2004 Meeting in Basle, the ESEM 2004 in Madrid, the EFA 2005 Meeting in Moscow and
at Concordia University, the University of Konstanz, Laval University, McMaster Univer-
sity, New York University and Syracuse University have been helpful to us. Financial
support by the Institut de Finance Mathématique de Montreal, the CoFE (University of
Konstanz), the ZEW (Mannheim) and a grant by the Deutsche Bundesbank are gratefully
acknowledged.

tUniversity of Konstanz, e-mail: [email protected]

*Pinehill Capital and Laval University, e-mail: [email protected]



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