Can Time-Varying Risk of Rare Disasters Explain Aggregate Stock Market Volatility?

By Jessica A. Wachter. 2008

670 citations recorded by the source corpus.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/50067d3321b24fa08bda5a0534ad8a1347dfda52

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Citations in the corpus

The Term Structure of Returns: Facts and Theory (2015, background): “1 Lettau and Wachter (2007) provide evidence inconsistent with the Campbell and Cochrane (1999) model, while BBK provide additional evidence that challenges the models of Campbell and Cochrane (1999) , Bansal and Yaron (2004) , and the rare disaster models of Gabaix (2012) and Wachter (2013) .”
What is the expected return on the market (2016, neutral): “The next example handles models, such as Wachter (2013), that are neither condi- tionally lognormal nor feature investors with time-separable utility.”
The Risk Premia Embedded in Index Options (2015, methodology): “…generate risk premia through different channels – the presence of rare disasters and uncertainty about their arrival (Wachter (2013) and Seo and Wachter (2013)) versus long-run risk and stochastic volatility in consumption growth (Drechsler and Yaron (2011)) – they share a critical feature…”
The Economic and Policy Consequences of Catastrophes (2013, neutral): “(22) that α and E (1 − Z ) are directly related.)”
Roughing up Beta: Continuous vs. Discontinuous Betas, and the Cross-Section of Expected Stock Returns (2014, neutral): “…mean and volatility of consumption growth as in Bansal and Yaron (2004), and the time-varying probability of a disaster as in Gabaix (2012) and Wachter (2013).12 However, given our primary focus on the pricing of market price risk, we purposely do not take a stand on what these other risk…”
Crash Risk in Currency Markets (2015, positive): “(12) Bhansali (2007) was the first to document the empirical properties of hedged carry trade strategies. Brunnermeier, Nagel, and Pedersen (2008) show that risk reversals increase with interest rates.”
Tail risk premia and return predictability (2014, methodology): “Further specializing this setup along the lines of the recent rare disaster models of Gabaix (2012) and Wachter (2013) involving a single source of (negative) jumps, the expression for the Q jump intensity simplifies to νQt ðxÞ ¼ e γxνPt ðxÞ, where γ refers to the risk-aversion of the…”
Tail Risk and Asset Prices (2014, background): “…include the Rietz (1988) and Barro (2006) rare disaster hypothesis and its extensions to dynamic settings by Gabaix (2011), Gourio (2012) and Wachter (2013), as well as extensions of Bansal and Yaron’s (2004) long run risks model that incorporate fattailed endowment shocks (Eraker and…”
How Much Would You Pay to Resolve Long-Run Risk? (2014, positive): “The intuition that persistence inflates the timing premium is corroborated with the rare disaster model: assuming high persistence of the jump process (as in Wachter, 2013) implies a timing premium of the order of 40%, much higher than in the i.i.d. model of Barro (2009), where it is around 20%.”
Credit Expansion and Neglected Crash Risk (2017, positive): “Following Rietz (1998) and Barro (2006), a quickly growing literature, e.g., Gabaix (2012) and Wachter (2013), highlights rare disasters as a compelling resolution of the equity premium puzzle.”