This paper examines a continuous-time intertemporal consumption and portfolio choice problem foran ambiguity-averse investor with multiple priors when the expected return of a risky asset isunobservable and follows a hidden Markov chain. The investor’s beliefs over investmentopportunities are...

We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies amongEuropean stocks, bonds, real estate, and cash, when excess asset returns are predictable. Simulations areperformed for scenarios involving different risk aversion levels, horizons, and...

The 2007-2008 financial crises has made it painfully obvious that markets may quickly turn illiquid.Moreover, recent experience has shown that distress and lack of active trading can jump “around”between seemingly unconnected parts of the financial system contributing to transforming...

Applying the framework of conditional event studies shows that equity issues reveal managers‟private information about stock mispricing, which investors only partially discount into stockprices at the seasoned equity offering (SEO) announcement date. Negative abnormal returnsoccur as prices...

This study explores the information content of HML and SMB by linking the Fama-French factors toshocks in the state variables which predict future investment opportunities. It shows that the HMLfactor contains information about shocks to default spread. Moreover, the Fama-French modelexplains...

Welfare gains to long-horizon investors may derive from time diversification that exploits non-zerointertemporal return correlations associated with predictable returns. Real estate may thus become moredesirable if its returns are negatively serially correlated. While it could be important for...

This paper examines a continuous-time intertemporal consumption and portfoliochoice problem for an investor with Duffie and Epstein (1992a)’s recursive preferenceswho worries about model misspecification (model uncertainty) and wants toseek robust decision rules. The expected excess return of...

We use multivariate regime switching vector autoregressive models to characterize the time-varyinglinkages among the Irish stock market, one of the top world performers of the 1990s, and the US andUK stock markets. We ¯nd that two regimes, characterized as bear and bull states, are required...

A growing number of studies in finance decompose multi-period buy-and-hold portfolioreturns into a series of single period returns. The method used to decomposethese returns is important because researchers use them in tests of asset pricing modelsand market efficiency and in evaluating the...

We address one interesting case — the predictability of excess US asset returns from macroeconomic factors within a flexible regime switching VAR framework — in which the presence of regimes may lead to superior forecasting performance from forecast combinations. After having documented that...