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Asset Pricing under Rational Learning about Rare Disasters

Koulovatianos, Christos; Wieland, Volker - C.E.P.R. Discussion Papers - 2011

This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors' information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the...

Persistent link: https://www.econbiz.de/10009201120

Durable Goods, Borrowing Constraints and Consumption Insurance

Cerletti, Enzo; Pijoan-Mas, Josep - C.E.P.R. Discussion Papers - 2012

In this paper we study the transmission of income shocks into nondurable consumption in the presence of durable goods. We use a standard a life-cycle model with two goods to characterize the interaction of durability of goods, durability of shocks, and borrowing constraints as determinants of...

Persistent link: https://www.econbiz.de/10011084596

Durable consumption and asset management with transaction and observation costs

Alvarez, Fernando; Guiso, Luigi; Lippi, Francesco - C.E.P.R. Discussion Papers - 2010

The empirical evidence on rational inattention lags far behind the theoretical developments: micro evidence on the most immediate consequence of observation costs - the infrequent observation of state variables - is not available in standard datasets. We contribute to filling the gap with two...

Persistent link: https://www.econbiz.de/10008468638

Model Misspecification and Under-Diversification

Uppal, Raman; Wang, Tan - C.E.P.R. Discussion Papers - 2002

asset returns. Our contribution is to develop a framework that allows for ambiguity about the joint distribution of returns … for all stocks being considered for the portfolio, and also for different levels of ambiguity for the marginal … international equity returns. The calibration shows that when the overall ambiguity about the joint distribution of returns is high …

Persistent link: https://www.econbiz.de/10005504745

Portfolio Selection with Parameter and Model Uncertainty: A Multi-Prior Approach

Garlappi, Lorenzo; Uppal, Raman; Wang, Tan - C.E.P.R. Discussion Papers - 2005

In this paper, we show how an investor can incorporate uncertainty about expected returns when choosing a mean-variance optimal portfolio. In contrast to the Bayesian approach to estimation error, where there is only a single prior and the investor is neutral to uncertainty, we consider the case...

Persistent link: https://www.econbiz.de/10005791415

Portfolio Selection with Parameter and Model Uncertainty: A Multi-Prior Approach

Garlappi, Lorenzo; Uppal, Raman; Wang, Tan - C.E.P.R. Discussion Papers - 2005

Persistent link: https://www.econbiz.de/10005124485

Keynes Meets Markowitz: The Trade-off Between Familiarity and Diversification

Boyle, Phelim; Garlappi, Lorenzo; Uppal, Raman; Wang, Tan - C.E.P.R. Discussion Papers - 2010

assets - and Markowitz - who advocates diversification across assets. We rely on the concepts of ambiguity and ambiguity … degree of ambiguity across assets, and (ii) the standard deviation of the estimate of expected return on each asset. If the … standard deviation of the expected return estimate and the difference between the ambiguity about familiar and unfamiliar …

Persistent link: https://www.econbiz.de/10008468537

Consumption Over the Life-Cycle

Gourinchas, Pierre-Olivier; Parker, Jonathan A - C.E.P.R. Discussion Papers - 2000

This paper employs cohort technique and Consumer Expenditure Survey data to construct average age-profiles of consumption and income over the working lives of typical households across different education and occupation groups. Using these profiles, we estimate a structural model of optimal...

Persistent link: https://www.econbiz.de/10005504201

The Role of Risk Aversion and Intertemporal Substitution in Dynamic Consumption-Portfolio Choicewith Recursive Utility

Bhamra, Harjoat S.; Uppal, Raman - C.E.P.R. Discussion Papers - 2005

The objective of this paper is to understand the implications for consumption and portfolio choice of the separation of an investor’s risk aversion and elasticity of intertemporal substitution that is made possible by recursive utility, in contrast to expected utility, where the two are...

Persistent link: https://www.econbiz.de/10005661747

Identity, Dignity and Taboos: Beliefs as Assets

Bénabou, Roland; Tirole, Jean - C.E.P.R. Discussion Papers - 2007

We analyze social and economic phenomena involving beliefs which people value and invest in, for affective or functional reasons. Individuals are at times uncertain about their own 'deep values' and infer them from their past choices, which then come to define 'who they are'. Identity...

Persistent link: https://www.econbiz.de/10005661790