We solve a portfolio choice problem when expected returns, volatilities and trading-costs follow a regime-switching model. The optimal policy trades towards an aim portfolio given by a weighted-average of the conditional mean-variance portfolios in all future states. The trading speed is higher...

We solve for the optimal dynamic asset allocation when expected returns, volatilities, and trading costs follow a regime switching model. The optimal policy is to trade partially towards an aim portfolio with a given trading speed. In a given state, the aim portfolio is a weighted average of...

In this paper, we explore the implications of these richer preference specifications for the Social Cost of Carbon (SCC), the expected discounted damage of each marginal ton of carbon emissions at an optimal emissions reductions pathway. We develop a simple discrete-time model in which the...

This paper offers a model in which asset prices reflect both covariance risk and misperceptions of firms' prospects, and in which arbitrageurs trade against mispricing. In equilibrium, expected returns are linearly related to both risk and mispricing measures (e.g., fundamental/price ratios)....

A number of papers have solved for the optimal dynamic portfolio strategy when expected returns are time-varying and trading is costly, but only for agents with myopic utility. Non-myopic agents benefit from hedging against shocks to the investment opportunity set even when transaction costs are...

Using data on individual portfolio holdings and on mutual fund flows, we find that low interest rates lead to a significantly higher demand for income-generating assets such as high-dividend stocks and high-yield bonds. We argue that this "reaching for income" phenomenon is driven by investors...