Our objective is to identify the trading strategy that would allow an investor to take advantage of ''excessive'' stock price volatility and “sentiment” fluctuations. We construct a general-equilibrium model of sentiment. In it, there are two classes of agents and stock prices are...

Our objective is to understand the trading strategy that would allow an investor to take advantage of 'excessive' stock price volatility and 'sentiment' fluctuations. We construct a general equilibrium model of sentiment. In it, there are two classes of agents and stock prices are excessively...

In this paper, we show how an investor can incorporate uncertainty about expected returns when choosing a mean-variance optimal portfolio. In contrast to the Bayesian approach to estimation error, where there is only a single prior and the investor is neutral to uncertainty, we consider the case...

We develop a model of portfolio choice to nest the views of Keynes - who advocates concentration in a few familiar assets - and Markowitz - who advocates diversification across assets. We rely on the concepts of ambiguity and ambiguity aversion to formalize the idea of an investor’s...

Our objective in this paper is to examine whether one can use option-implied information to improve mean-variance portfolio selection with a large number of stocks, and to document which aspects of option-implied information are most useful for improving the out-of-sample performance of...

In this paper, we show how an investor can incorporate uncertainty about expected returns when choosing a mean-variance optimal portfolio. In contrast to the Bayesian approach to estimation error, where there is only a single prior and the investor is neutral to uncertainty, we consider the case...

In this paper, we compare the out-of-sample performance of the rule allocating 1/N to each of the N available assets to several static and dynamic models of optimal asset-allocation for ten datasets. We devote particular attention to models the literature has proposed to account for estimation...

Returns on international equities are characterized by jumps; moreover, these jumps tend to occur at the same time across countries leading to systemic risk .In this Paper, we evaluate whether systemic risk reduces substantially the gains from international diversification. First, in order to...

In this article, we show how to analyse analytically the equilibrium policies and prices in an economy with a stochastic investment opportunity set and incomplete financial markets, when agents have power utility over both intermediate consumption and terminal wealth, and face portfolio...

In this Paper we develop a model of intertemporal portfolio choice where an investor accounts explicitly for the possibility of model misspecification. This work is motivated by the difficulty in estimating precisely the probability law for asset returns. Our contribution is to develop a...