Showing 1 - 10 of 36
Portfolio optimization focuses on risk and return prediction, yet implementation costs critically matter. Predicting trading costs is challenging because costs depend on trade size and trader identity, thus impeding a generic solution. We focus on a component of trading costs that applies...
Persistent link: https://www.econbiz.de/10015094879
A number of papers have solved for the optimal dynamic portfolio strategy when expected returns are time-varying and trading is costly, but only for agents with myopic utility. Non-myopic agents benefit from hedging against future shocks to the investment opportunity set even when transaction...
Persistent link: https://www.econbiz.de/10015094900
We study sources and implications of undiversified portfolios in a production-based asset pricing model with financial frictions. Households take concentrated positions in a single firm exposed to idiosyncratic shocks because managerial effort requires equity stakes, and because investors gain...
Persistent link: https://www.econbiz.de/10014250139
We introduce a novel empirical decomposition of equity price growth rates in terms of equity holdings, based on market-clearing conditions. Although our sample holdings cover only an average of 5% of market capitalization, our reconstructed equity holdings account for, on average, 89% of the...
Persistent link: https://www.econbiz.de/10014635719
We document that value-to-price, the ratio of Residual-Income-Model-based valuation to market price, subsumes the power of book-to-market ratio and many other value or quality measures in predicting stock returns. Long-short value-to-price portfolios hedge against momentum, revitalize the...
Persistent link: https://www.econbiz.de/10014226164
We analyze an environment where the uncertainty in the equity market return and its volatility are both stochastic, and may be potentially disconnected. We solve a representative investor's optimal asset allocation and derive the resulting conditional equity premium and risk-free rate in...
Persistent link: https://www.econbiz.de/10012616642
We develop a machine-learning solution algorithm to solve for optimal portfolio choice in a detailed and quantitatively-accurate lifecycle model that includes many features of reality modelled only separately in previous work. We use the quantitative model to evaluate the consumption-equivalent...
Persistent link: https://www.econbiz.de/10012794587
We develop a theory to account for changes in gross and net capital flows over the global financial cycle (GFC). The theory relies critically on portfolio heterogeneity among investors within and across countries, related to risky portfolio shares and portfolio shares allocated to foreign...
Persistent link: https://www.econbiz.de/10013477230
In this paper, we show that cross-border portfolio flows around the peak of the European Crisis induced households to rebalance their portfolios toward housing. Estimating difference-in-differences regressions around Draghi's "Whatever It Take" speech in July 2012 with household data from the...
Persistent link: https://www.econbiz.de/10014512064
We introduce and analyze a new market design for trading financial assets. The design allows traders to directly trade any user-defined linear combination of assets. Orders for such portfolios are expressed as downward-sloping piecewise-linear demand curves with quantities as flows...
Persistent link: https://www.econbiz.de/10014250116