We introduce a portfolio friction in a two-country DSGE model where investors face a constant probability to make new portfolio decisions. The friction leads to a more gradual portfolio adjustment to shocks and a weaker portfolio response to changes in expected excess returns. We apply the model...

We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate...

Using a parametric portfolio optimization approach, I show how international momentum strategies can be significantly improved by decomposing global momentum returns. The parametrization models the optimal portfolio weights as a function of the decomposed components and overweights equity...

Using high-frequency data, we decompose the time-varying beta for stocks into beta for continuous systematic risk and beta for discontinuous systematic risk. Estimated discontinuous betas for S&P500 constituents between 2003 and 2011 generally exceed the corresponding continuous betas. We...

In this paper, we propose a multivariate market model with returns assumed to follow a multivariate normal tempered stable distribution. This distribution, defined by a mixture of the multivariate normal distribution and the tempered stable subordinator, is consistent with two stylized facts...

We implement a long-horizon static and dynamic portfolio allocation involving a risk-free and a risky asset. This model is calibrated at a quarterly frequency for ten European countries. We also use maximum-likelihood estimates and Bayesian estimates to account for parameter uncertainty. We find...

This paper develops a dynamic portfolio selection model incorporating economic uncertainty for business cycles. It is assumed that the financial market at each point in time is defined by a hidden Markov model, which is characterized by the overall equity market returns and volatility. The risk...

The problem of optimal wealth allocation is solved under the assumptions that interest rates are stochastic and stock returns are predictable with observed and unobserved factors. The stock risk premium is taken to be an affine function of the predictive variables and the stock return volatility...

This paper presents a rational expectations model of asset prices with rationally inattentive investors that, unlike previous papers, explains both the substantial amount of equity wealth invested domestically and the puzzling time series behavior of the home bias - an initial plateau before...

The objective of this paper is to combine a real options framework with portfolio optimization techniques and to apply this new framework to investments in the electricity sector. In particular, a real options model is used to assess the adoption decision of particular technologies under...