I study the effects of risk and ambiguity (Knightian uncertainty) on optimal portfolios and equilibrium asset prices when investors receive information that is difficult to link to fundamentals. I show that the desire of investors to hedge ambiguity leads to portfolio inertia and excess...

The essential incentives for investment portfolio managers are pursing relative outstanding portfolio performance among their peers in order to be rewarded by the fractions of the fund inflows. This competition for fund inflows becomes dynamic games among money managers. This paper accordingly...

We study the optimal liquidation problem in a market model where the bid price follows a geometric pure jump process whose local characteristics are driven by an unobservable finite-state Markov chain and by the liquidation rate. This model is consistent with stylized facts of high frequency...

I study the effects of aversion to risk and ambiguity (uncertainty in the sense of Knight (1921)) on the value of the market portfolio when investors receive public information that they find difficult to link to fundamentals and hence treat as ambiguous. I show that small changes in public...

We analyze the Merton portfolio optimization problem when the growth rate is an unobserved Gaussian process whose level is estimated by filtering from observations of the stock price. We use the Kalman filter to track the hidden state(s) of expected returns given the history of asset prices, and...

I conduct a horse-race of 15 portfolio construction techniques over 8 empirical datasets comprised of individual stocks. I also conduct a robust Monte Carlo analysis that confirms that recent extensions of mean-variance optimization due to Kirby and Ostdiek (2012) are successful in curbing...

We find economically and statistically significant gains when using machine learning for portfolio allocation between the market index and risk-free asset. Optimal portfolio rules for time-varying expected returns and volatility are implemented with two Random Forest models. One model is...