Showing 1 - 10 of 77
Allowing for a richer information structure than usual, we show that rational traders’ calculation with short-term price fluctuations may heavily influence their behaviour even if the interim price is not influenced by non-rational agents i.e. there is no noise trader risk. Instead, traders...
Persistent link: https://www.econbiz.de/10010884635
This paper surveys asset allocation methods that extend the traditional approach. An important feature of the traditional approach is that measures the risk and return tradeoff in terms of mean and variance of final wealth. However, there are also other important features that are not always...
Persistent link: https://www.econbiz.de/10010745189
This paper offers two main contributions. First, it shows how the Baxter and Jermann (1997) claim that, once we consider human capital risk, the international diversification puzzle is worse than we think, is based on an econometric misspecification rejected by the data. Second, it outlines how,...
Persistent link: https://www.econbiz.de/10010746135
We study a simple rational expectations (RE) model whose asset pricing implications address some of the short-run mispricings, informational inefficiencies, and overreactions observed in real markets, without a need to resort to behavioral assumptions. We accomplish this by relying on the...
Persistent link: https://www.econbiz.de/10010746573
This paper introduces a tractable, structural model of subjective beliefs. Since agents that plan for the future care about expected future utility flows, current felicity can be increased by believing that better outcomes are more likely. On the other hand, expectations that are biased towards...
Persistent link: https://www.econbiz.de/10010746723
We provide a historical perspective focusing on Ziemba's experiences and research on the bond-stock earnings yield differential model (BSEYD) starting from when he first used it in Japan in 1988 through to the present in 2014. The model has called many but not all crashes. Those called have high...
Persistent link: https://www.econbiz.de/10011170088
One of the most contentious issues raised during the recent crisis has been the potentially exacerbating role played by mark-to-market accounting. Many have proposed the use of historical cost accounting, promoting its ability to avoid the amplification of systemic risk. We caution against...
Persistent link: https://www.econbiz.de/10011171756
We consider a general equilibrium Lucas (1978) economy with one consumption good and two heterogeneous Epstein-Zin investors. The output is subject to rare large drops or, more generally, can have non-lognormal distribution with higher cumulants. The heterogeneity in preferences generates excess...
Persistent link: https://www.econbiz.de/10011126596
Contrary to the classic framework of passive strategies, if investors exploit return predictability through active strategies then there is a tension between the mean-variance frontiers that drive empirical work and the mean-variance preferences that are used in finance theory. We show that...
Persistent link: https://www.econbiz.de/10011071262
This paper provides an alternative real options framework to assess how firms' strategic interaction under imperfect competition a¤ects the industrial dynamics of investment, concentration, and expected returns. When firms have similar production technologies, the cross sectional variation in...
Persistent link: https://www.econbiz.de/10011071300