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

Figure 4: Asset price as a function of the concurrent monthly div-
idend.

The figure shows for four different specifications the asset price as a function of
the concurrent monthly dividend. The first graph (left) shows the benchmark case
of constant aggregate RRA. The other graph shows the asset prices for declining
aggregate RRA as shown in Specification 1 (gray line), Specification 2 (black line)
and Specification 3 (dotted line)(Figure 1-3).

Figure 5: Elasticity of the asset price with respect to the concurrent
monthly dividend.

The figure shows the elasticity of the asset price with respect to the concurrent
monthly dividend for declining aggregate RRA as shown in Specification 1 (gray
line), Specification 2 (black line) and Specification 3 (dotted line) (Figure 1-3).
The benchmark case of constant aggregate RRA (not shown in the figure) yields a
constant elasticity of 1.

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