The equilibrium prices in asset markets, as stated by Keynes (1930), "...will be fixed at the point at which the sales of the bears and the purchases of the bulls are balanced." We propose a descriptive theory of finance explicating Keynes' claim that the prices of assets today equilibrate the...

A sensitivity analysis of the impact of Cumulative Prospect Theory (CPT) parameters on a Mean/Risk efficient frontier is performed, through a simulation procedure, assuming a Multivariate Variance Gamma distribution for log-returns. The optimal investment problem for an agent with CPT...

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...

During recent decades, many new models have emerged in pure and applied economic theory according between Epstein (2010) and Klibanoff et al. (2012) identified a notable behavioral issue that distinguishes sharply between two classes of models of ambiguity sensitivity that are importantly...

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...

Previous literature on cash management has revealed that firms hoard cash to protect themselves against external financing constraints that might limit future capital budgeting policies. In a theoretical model based on this finding, we analyze how investors' attitude towards uncertain investment...

This paper analyzes the optimal production and hedging decisions of a competitive firm holding optimism and pessimism under price ambiguity. We show that the separation theorem remains intact as the firm's optimal output level depends neither on the output price distribution nor on the firm's...

We investigate the theoretical relationship between ambiguity aversion and the decision to withdraw early from a deposit contract. We first document and define the concepts to illustrate our results. Then we extend the theoretical framework of Gorton (1985) to implement a model of maxmin...