Showing 1 - 10 of 25
We evaluate how non-normality of asset returns and the temporal evolution of volatility and higher moments affects the conditional allocation of wealth. We show that if one neglects these aspects, as would be the case in a mean-variance allocation, a significant cost would arise. The performance...
Persistent link: https://www.econbiz.de/10005858337
This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investor’s expected life-time utility, and analyze his hedging demands for intertemporal changes...
Persistent link: https://www.econbiz.de/10005858506
Three types of agents acting on different information sets are considered: fully informed agents, insiders, and outsiders. Differences in information quality are shown to affect the properties of their optimal portfolios. For an outsider, the share of wealth invested in the stock is decreasing...
Persistent link: https://www.econbiz.de/10005858588
We consider consistent tests for stochastic dominance efficiency at any order of a given portfolio with respect to all possible portfolios constructed from a set of assets. We justify block bootstrap approaches to achieve valid inference in a time series setting. The test statistics are computed...
Persistent link: https://www.econbiz.de/10005858776
The recently proposed class of MixN-GARCH models, which couple a mixed normal distributional structure with linked GARCH-type dynamics, has been shown to offer a plausible decomposition of the contributions to volatility, as well as admirable out-of-sample forecasting performance, for financial...
Persistent link: https://www.econbiz.de/10005858753
Economic cycles are the key credit portfolio risk driver and they are autocorrelated over time. We then show that it is economically meaningful to define risk for credit portfolios in a multi period setup. Since one period expected shortfall fails to measure risk adequately in a multi period...
Persistent link: https://www.econbiz.de/10005858869
We propose an affine term structure model which accommodates non-linearities in the drift and volatility function of the short-term interest rate. Such non-linearities are a consequence of discrete beta-distributed regime shifts constructed on multiple thresholds. We derive iterative closed form...
Persistent link: https://www.econbiz.de/10005858872
This paper analyzes the term structure of interest rates in an exchange-only Lucas (1978) economy where consumers learn about a stochastic growth rate through observations of the endowment process and an external public signal. We allow for deluded consumers, who exaggerate the degree of...
Persistent link: https://www.econbiz.de/10005858508
We show in a theoretical model that the expected excess return on any asset depends on its covariance not only with the market portfolio, but also with changes in the representative agents estimate. We test our model by using GMM and compare it to the Fama-French model. The results suggest that...
Persistent link: https://www.econbiz.de/10005858510
We prove that under very weak conditions optimal financial products have to be co-monotone with the inverted state price density. Optimality is meant in the sense of the maximization of an arbitrary preference model, e.g. Expected Utility Theory or Prospect Theory. The proof is based on methods...
Persistent link: https://www.econbiz.de/10005858203