Do Mood Fluctuations Generate Higher Fluctuations of Asset Prices During Disasters

摘要

This paper extends the framework of Mehra and Sah (2002)into a rare disaster model，and examines whether or not mood fluctuations generate higher asset prices fluctuations during disasters．Our answer is that it depends on the elasticity of intertemporal substitution．When there is a disaster,all fluctuations in subjective preferences (discount factors，risk aversion and the elasticity of intertemporal substitution)have significant impacts on fluctuations of equity prices，but only small effects on fluctuations of bond prices．