We embed systematic default, procyclic recovery rates and habit persistance into a model with a slight possibility of a macroeconomic disaster of reasonable magnitude. We derive analytical solutions for defaultable bond prices and show that a single set of structural parameters calibrated to the...

I investigate the allocation of wealth to cash, bonds, and stocks, along with the bond-to-stock ratio (BSR) when interest rates are time-varying and stock returns are predictable via the dividend-price ratio (DPR). The bond–stock mix and the BSR vary with the deviation of the current level of...

We examine the effects of human capital on consumption, stock market, and other fluctuations in a general equilibrium continuous-time model. A representative consumer-worker-investor derives utility from consumption and leisure. A representative firm demands labour as the sole input to a...

This paper develops a general equilibrium, continuous time model where portfolio constraints generate mispricing between redundant securities. Constrained consumption-portfolio optimization techniques are adapted to incorporate redundant, possibly mispriced, securities. We demonstrate the...

We study the dynamic equilibrium behavior of security prices in an economy where nonfundamental risk arises from agents' heterogeneous beliefs about extraneous processes. We provide a complete characteriszation of equilibrium in terms of the primitives of the economy, via construction of a...

This paper uses the cross-sectional variance of the betas to study herd behavior towards the market index in major developed and emerging financial markets (categorized as Developed group, Asian group, and Latin American group). We propose a robust regression technique to calculate the betas of...

In this paper, we examine an exchange economy with a financial market composed of three assets: a share of a stock, an European call option written on the stock, and a riskless bond. The financial market is assumed to be incomplete and the option is not a redundant asset. In such a case the...

We propose a non-equidistant Q rate matrix formula and an adaptive numerical algorithm for a continuous time Markov chain to approximate jump-diffusions with affine or non-affine functional specifications. Our approach also accommodates state-dependent jump intensity and jump distribution, a...

This study sheds new light on the question of whether or not sentiment surveys, and the expectations derived from them, are relevant to forecasting economic growth and stock returns, and whether they contain information that is orthogonal to macroeconomic and financial data. I examine 16...