Do Disaster Expectations Explain Household Portfolios ? 1

  title={Do Disaster Expectations Explain Household Portfolios ? 1},
  author={Sule Alan},
It has been argued that rare economic disasters can explain most asset pricing puzzles. If this is the case, perceived risk associated with a disaster in stock markets should be revealed in household portfolios. That is, the framework that solves these pricing puzzles should also generate quantities that are consistent with the observed ones. This paper estimates the perceived risk of disasters (both probability and expected size) that is consistent with observed portfolios and consumption… CONTINUE READING

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