One striking feature of international portfolio investment is the extent to which equity portfolios are concentrated in the domestic equity market of the investor - the home bias puzzle. In this paper, I examine the role of investors' perception of the risk of foreign investment on their...

This paper examines the international diversification benefits subject to portfolio constraints --- in particular, constraints on short selling. We show that the international diversification benefits remain substantial for U.S. equity investors when they are prohibited from short selling in...

One striking feature of international portfolio investment is the extent to which equity portfolios are concentrated in the domestic equity market of the investor - the home bias puzzle. In this paper, I examine the role of investors' perception of the risk of foreign investment on their...

This paper examines the international diversification benefits subject to portfolio constraints - in particular, constraints on short selling. We show that the international diversification benefits remain substantial for U.S. equity investors when they are prohibited from short selling in...

We apply Bayesian methods to study a common VAR-based approach for decomposing the variance of excess stock returns into components reflecting news about future excess stock returns, future real interest rates, and future dividends. We develop a new prior elicitation strategy which involves...

A fundamental question in finance is whether and how removing market frictions is associated with efficiency gains. We study this question using share issue privatization in China that took place through the split share structure reform. Prior to the reform, domestic A-shares were divided into...

A fundamental question in finance is whether and how removing market frictions is associated with efficiency gains. We study this question using share issue privatization in China that took place through the split share structure reform. Prior to the reform, domestic A-shares were divided into...

We derive the price of inflation-indexed bonds of which the payments are linked to a lagged price index, and solve for the optimal bond portfolio under both inflation and indexation lags in closed form. We show that indexation lags increase the number of state variables characterizing both the...

This paper documents a highly downward sloping security market line (SML) in China, which is more puzzling than the typical “flattened” SML in the US, and does not reconcile with existing theories of low-beta anomaly. We show that investor overconfidence offers some promises in resolving the...

We provide a new methodology to forecast the equity premium. We show, theoretically and empirically, that our forecast first-order stochastically dominates the historical average and incurs a better mean squared forecast error than the historical average. Our forecast combines the low variance...