Recursive preferences, learning and large deviations

•An asset pricing model with recursive preferences is specified.•The model is estimated under the assumption of adaptive learning.•Both of these sources of volatility account for fluctuations in liquid stock markets.•However, only risk aversion matters for illiquid housing markets.

We estimate the relative contribution of recursive preferences versus adaptive learning in accounting for the tail thickness of price-dividends/rents ratios. We find that both of these sources of volatility account for volatility in liquid (stocks) but not illiquid (housing) assets.