We model the asset allocation decision of a stylized corporate defined benefit pension plan in the presence of hedgeable and unhedgeable risks. We assume that plan fiduciaries--who make the asset allocation decision--face non-linear payoffs linked to the plan’s funding status because of the...

The literature shows a substantial portion of momentum profits come from illiquid investments and short-selling, entailing abnormal transaction costs. Concentrating on liquid long-only investments, we investigate momentum using index out-performance portfolio selection (via a modified Sortino...

We propose several connectedness measures built from pieces of variance decompositions, and we argue that they provide natural and insightful measures of connectedness among financial asset returns and volatilities. We also show that variance decompositions define weighted, directed networks, so...

Homestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios towards home equity. Using US household data from the Survey of Income...

We present a framework for designing optimal allocation strategies for large stock portfolios using dynamic factor models and multivariate volatility parametrisations. We attempt to elaborate on the fundamental structure of the Fama and French (FF) factor model with a special focus on the time...

We propose a new decision criterion under risk in which individuals extract both utility from anticipatory feelings ex ante and disutility from disappointment ex post. The decision maker chooses his degree of optimism, given that more optimism raises both the utility of ex ante feelings and the...