{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,7,24]],"date-time":"2026-07-24T03:38:11Z","timestamp":1784864291796,"version":"3.55.0"},"reference-count":55,"publisher":"The Econometric Society","issue":"4","license":[{"start":{"date-parts":[[2025,1,1]],"date-time":"2025-01-01T00:00:00Z","timestamp":1735689600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/creativecommons.org\/licenses\/by-nc\/4.0\/legalcode"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":["QE"],"abstract":"<jats:p>Financial crises appear to have long\u2010lasting effects, even after the crisis itself has passed. This paper offers a simple explanation based on Bayesian learning from rare events. Agents face a latent and time\u2010varying probability of economic disaster. When a disaster occurs, learning results in greater effects on asset prices because agents update their probability of future disasters. Moreover, agents' belief that the disaster risk is high can rationally persist for years, even when it is in fact low. We generalize the model to allow for a noisy signal of the disaster probability. This generalized model explains excess stock market volatility together with negative skewness, effects that previous models in the literature struggle to explain.<\/jats:p>","DOI":"10.3982\/qe1716","type":"journal-article","created":{"date-parts":[[2025,11,17]],"date-time":"2025-11-17T13:54:47Z","timestamp":1763387687000},"page":"1189-1221","source":"Crossref","is-referenced-by-count":6,"title":["Learning with rare disasters"],"prefix":"10.3982","volume":"16","author":[{"given":"Jessica A.","family":"Wachter","sequence":"first","affiliation":[{"name":"Wharton School, University of Pennsylvania"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Yicheng","family":"Zhu","sequence":"additional","affiliation":[{"name":"Unaffiliated"}],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"2359","published-online":{"date-parts":[[2025]]},"reference":[{"issue":"3","key":"quan200392-bib-0001","doi-asserted-by":"crossref","first-page":"462","DOI":"10.1016\/j.jfineco.2010.07.002","volume":"98","author":"Bakshi","year":"2010","journal-title":"Journal of Financial Economics"},{"issue":"4","key":"quan200392-bib-0002","doi-asserted-by":"crossref","first-page":"1481","DOI":"10.1111\/j.1540-6261.2004.00670.x","volume":"59","author":"Bansal","year":"2004","journal-title":"Journal of Finance"},{"issue":"3","key":"quan200392-bib-0003","doi-asserted-by":"crossref","first-page":"823","DOI":"10.1162\/qjec.121.3.823","volume":"121","author":"Barro","year":"2006","journal-title":"Quarterly Journal of Economics"},{"issue":"1 (Spring)","key":"quan200392-bib-0004","doi-asserted-by":"crossref","first-page":"255","DOI":"10.1353\/eca.0.0000","volume":"39","author":"Barro","year":"2008","journal-title":"Brookings Papers on Economic Activity"},{"issue":"3","key":"quan200392-bib-0005","doi-asserted-by":"crossref","first-page":"552","DOI":"10.1016\/j.jfineco.2011.01.008","volume":"101","author":"Benzoni","year":"2011","journal-title":"Journal of Financial Economics"},{"issue":"1\u20132","key":"quan200392-bib-0006","doi-asserted-by":"crossref","first-page":"5","DOI":"10.1016\/0304-4076(92)90064-X","volume":"52","author":"Bollerslev","year":"1992","journal-title":"Journal of Econometrics"},{"issue":"3","key":"quan200392-bib-0007","doi-asserted-by":"crossref","first-page":"1453","DOI":"10.1111\/j.1540-6261.2007.01241.x","volume":"62","author":"Broadie","year":"2007","journal-title":"Journal of Finance"},{"key":"quan200392-bib-0008","doi-asserted-by":"crossref","first-page":"205","DOI":"10.1086\/250059","volume":"107","author":"Campbell","year":"1999","journal-title":"Journal of Political Economy"},{"issue":"3","key":"quan200392-bib-0009","doi-asserted-by":"crossref","first-page":"281","DOI":"10.1016\/0304-405X(92)90037-X","volume":"31","author":"Campbell","year":"1992","journal-title":"Journal of Financial Economics"},{"key":"quan200392-bib-0010","unstructured":"Center for Research in Security Prices (CRSP) (2025a), \u201cCRSP US equity value-weighted return series.\u201d https:\/\/wrds.wharton.upenn.edu. 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