Relative purchasing power parity (PPP) holds for pure price inflations, which affect prices of all goods and services by the same proportion, while leaving relative prices unchanged. Pure price inflations also affect nominal returns of all traded financial assets by exactly the same amount....

We develop a simple framework for analyzing a finite-horizon investor's asset allocation problem under inflation when only nominal assets are available. The investor's optimal investment strategy and indirect utility are given in simple closed form. Hedge demands depend on the investor's horizon...

This paper examines the effects of uncertainty about the stock return predictability on optimal dynamic portfolio choice in a continuous time setting for a long-horizon investor. Uncertainty about the predictive relation affects the optimal portfolio choice through dynamic learning, and leads to...

We estimate the parameters of pricing kernels that depend on both aggregate wealth and state variables that describe the investment opportunity set, using FTSE 100 and Samp;P 500 index option returns as the returns to be priced. The coefficients of the state variables are highly significant and...