Stock Market Volatility and Mathematical Expectations
5 Pages Posted: 24 Sep 2019
Date Written: September 14, 2019
It is generally believed that excessive stock market volatility reflects non-mathematical market expectations that are driven by “irrational exuberance” or “animal spirits”. As shown in this paper, there is an alternative explanation. If ex-ante and ex-post expectations are calculated in different stochastic processes, uncertainty can cause mathematical market expectations to be more volatile than their fundamentals.
Keywords: volatility, stocks, assets, variance bounds
JEL Classification: C12, G00, G12
Suggested Citation: Suggested Citation