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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

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

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

A Model of Credit Risk, Optimal Policies and Asset Prices

Basak, Suleyman; Shapiro, Alex - C.E.P.R. Discussion Papers - 2002

This Paper studies the optimal policies of borrowers (firms or individuals) who may default subject to default costs, and analyses the asset pricing implications. Borrowers defaulting under adverse economic conditions may, despite incurring default costs, emerge as wealthier than non-borrowers...

Persistent link: https://www.econbiz.de/10005788927

What Do We Learn from the Price of Crude Oil Futures?

Alquist, Ron; Kilian, Lutz - C.E.P.R. Discussion Papers - 2007

Based on a two-country, two-period general equilibrium model of the spot and futures markets for crude oil, we show that there is no theoretical support for the common view that oil futures prices are good predictors of the spot price in the mean-squared error sense; yet under certain conditions...

Persistent link: https://www.econbiz.de/10005792183

Assortative Matching in a Non-transferable World

Legros, Patrick; Newman, Andrew - C.E.P.R. Discussion Papers - 2002

Progress in the application of matching models to environments in which the utility between matching partners is not fully transferable has been hindered by a lack of characterization results analogous to those that are known for transferable utility. We present sufficient conditions for...

Persistent link: https://www.econbiz.de/10005504313