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Bubbles, crashes and risk

Authors
Publisher
Elsevier B.V.
Volume
120
Issue
2
Identifiers
DOI: 10.1016/j.econlet.2013.04.030
Keywords
  • Risk
  • Asset Pricing
  • Bubbles
  • Adaptive Learning
Disciplines
  • Computer Science

Abstract

Highlights • An asset pricing model where agents forecast the conditional variance of a stock’s return. • Agents believe prices follow a random walk with a conditional variance that is self-fulfilling. • Agents estimate risk in real-time using a constant gain algorithm, bubbles and crashes can arise. • ARCH effects arise from updating risk, and effects are stronger when agents estimate an ARCH model.

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