TY  - JOUR
AU  - Bansal,Ravi
AU  - Shaliastovich,Ivan
TI  - Learning and Asset-Price Jumps
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14814
PY  - 2009
Y2  - March 2009
UR  - http://www.nber.org/papers/w14814
L1  - http://www.nber.org/papers/w14814.pdf
N1  - Author contact info:
Ravi Bansal
Fuqua School of Business
Duke University
1 Towerview Drive
Durham, NC 27708
Tel: 919/660-7758
Fax: 919/660-8038
E-Mail: ravi.bansal@duke.edu

Ivan Shaliastovich
The Wharton School
University of Pennsylvania
2423 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
Tel: 25-746-0005
E-Mail: ishal@wharton.upenn.edu
AB  - We develop a general equilibrium model in which income and dividends are smooth, but asset prices are subject to large moves (jumps). A prominent feature of the model is that the optimal decision of investors to learn the unobserved state triggers large asset-price jumps. We show that the learning choice is critically determined by preference parameters and the conditional volatility of income process. An important prediction of the model is that income volatility predicts future jumps, while the variation in the level of income does not. We find that indeed in the data  large moves in returns are predicted by consumption volatility, but not by the changes in the consumption level. We show that the model can quantitatively capture these novel features of the data.
ER  -