Stock Prices and the Risk-free Rate: An Internal Rationality Approach
SSRN, ISSN: 1556-5068
2020
- 701Usage
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Example: if you select the 1-year option for an article published in 2019 and a metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019. If you select the 3-year option for the same article published in 2019 and the metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019, 2018 and 2017.
Citation Benchmarking is provided by Scopus and SciVal and is different from the metrics context provided by PlumX Metrics.
Article Description
The co-movement of stock prices and the risk-free rate in the United States is weak in terms of the correlation and variance decomposition. It is essential for investors and policymakers to understand such co-movement, especially when several well-known asset pricing models imply a much stronger relationship than the one empirically observed. To explain this inconsistency, this paper presents a model with "internally rational" agents who optimally update their subjective beliefs about stock prices. Compared with the risk-free rate, agents' subjective beliefs are essential for generating stock market volatility. Quantitatively, our model can jointly produce basic asset market facts and the weak co-movement.
Bibliographic Details
http://www.scopus.com/inward/record.url?partnerID=HzOxMe3b&scp=85109856779&origin=inward; http://dx.doi.org/10.2139/ssrn.3589925; https://www.ssrn.com/abstract=3589925; https://dx.doi.org/10.2139/ssrn.3589925; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3589925; https://ssrn.com/abstract=3589925
Elsevier BV
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