Showing 1 - 10 of 1,385
In this paper I build a continuous time model of a complete financial market with $N$ heterogeneous agents whose constant relative risk aversion (CRRA) preferences differ in their level of risk aversion. I find that preference heterogeneity is able to replicate a high market price of risk and a...
Persistent link: https://www.econbiz.de/10012936081
In real world financial markets, dividend processes as well as fundamental values are governed by imprecision; neither the objective probabilities of returns nor the actual amounts of possible returns are known for certain. With a novel experimental approach, we analyze the impact of risk,...
Persistent link: https://www.econbiz.de/10012008802
We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest....
Persistent link: https://www.econbiz.de/10012175486
We develop an equilibrium model of real and financial market integration in which real firms and financial investors independently decide on their investment into different locations (countries). We show that, in the presence financial frictions, firms' real investment choices become strategic...
Persistent link: https://www.econbiz.de/10011519056
This paper presents an equilibrium model in a pure exchange economy when investors have three possible sources of heterogeneity. Investors may differ in their beliefs, in their level of risk aversion and in their time preference rate. We study the impact of investors heterogeneity on the...
Persistent link: https://www.econbiz.de/10013039076
American call and put options on the S&P 500 index futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2007) over 1983-2006 are identified as potentially profitable investment opportunities. Call bid prices more frequently violate their upper bound than put bid...
Persistent link: https://www.econbiz.de/10003876987
Information risk is an endogenous element of the market dynamics that can be independent from contingent levels of market efficiency. Being structural, it may require to be remunerated by a specific risk premia or by returns from specific portfolio strategies. Drivers of information risk are...
Persistent link: https://www.econbiz.de/10013116526
The empirical finding that entrepreneurs tend to invest a large share of their wealth in their own firms despite comparably low returns and high risk has become known as the private equity premium puzzle. This paper provides evidence supporting the hypothesis that lower risk aversion of...
Persistent link: https://www.econbiz.de/10013158383
A common criticism of behavioral economics is that it has not shown that the psychological biases of individual investors lead to aggregate long-run effects on both asset prices and macroeconomic quantities. Our objective is to address this criticism by providing a simple example of a production...
Persistent link: https://www.econbiz.de/10012966469
A discrete time model of financial markets is considered. It is assumed that the stock price evolution is described by a homogeneous Markov chain. In the focus of attention is the expected value of the guaranteed profit of the investor that arises when the jumps of the stock price are bounded....
Persistent link: https://www.econbiz.de/10010293729