A pay-as-you-go (paygo) pension program may provide intergenerational pooling of risks to individuals' labor and capital income over the life cycle. By means of a model that provides illuminating closed form solutions, we demonstrate that the magnitude of the optimal paygo program and the nature...

This paper considers the problem of model uncertainty in the case of multi-asset volatility models and discusses the use of model averaging techniques as a way of dealing with the risk of inadvertently using false models in portfolio management. Evaluation of volatility models is then considered...

This paper examines the optimal design of pension plans when the health status during retirement is uncertain. Assuming that the health status affects both life expectancy and the marginal utility of consumption, choice between a lump-sum payment and an annuity can be welfare-enhancing if the...

This paper investigates the limit properties of mean-variance (mv) and arbitrage pricing (ap) trading strategies using a general dynamic factor model, as the number of assets diverge to infinity. It extends the results obtained in the literature for the exact pricing case to two other cases of...

This paper proposes a novel test of zero pricing errors for the linear factor pricing model when the number of securities, N, can be large relative to the time dimension, T, of the return series. The test is based on Student t tests of individual securities and has a number of advantages over...

Using the Hamilton-Jacobi-Bellman equation, we derive both a Keynes-Ramsey rule and a closed form solution for an optimal consumption-investment problem with labor income. The utility function is unbounded and uncertainty stems from a Poisson process. Our results can be derived because of the...

One possible determinant of overpricing on asset markets is a lack of self-control abilities of traders. Self-control is the individual capacity to override or inhibit undesired behavioral tendencies such as impulses and to refrain from acting on them. We implement the first experiment that is...

Different investor classes are endowed with different rights, and conflicting interests among them can make protections afforded to one party detrimental to another. Indeed, we find that investor protection laws have sizeable "cross" effects on foreign portfolio investment and the direction of...

Carbon pricing regulates emission flows and collects rents from underlying fossil resource stocks. The resulting investment shift implies lower climate policy costs and improved welfare if capital is underaccumulated. We prove that under emission trading, such a beneficial macroeconomic...

We propose a model of instrumental belief choice under loss aversion. When new information arrives, an agent is prompted to abandon her prior. However, potential posteriors may induce her to take actions that generate a lower utility in some states than actions induced by her prior. These losses...