How do differences of opinion affect asset prices? Do investors earn a risk premium when disagreement arises in the market? Despite their fundamental importance, these questions are among the most controversial issues in finance. In this paper, we use a novel data set that allows us to directly...

Using proprietary portfolio data on millions of households, we show that (likely) Republicans increase the equity share and market beta of their portfolios following the 2016 presidential election, while (likely) Democrats rebalance into safe assets. We provide evidence that this behavior is...

Investor sophistication has lagged behind the growing complexity of retail financial markets. To explore this, we develop a dynamic model to study the interaction between obfuscation and investor sophistication. Taking into account different learning mechanisms within the investor population, we...

This review article describes recent literature on asset allocation, covering both static and dynamic models. The article focuses on the bond--stock decision and on the implications of return predictability. In the static setting, investors are assumed to be Bayesian, and the role of various...

Recurrent intervals of inattention to the stock market are optimal if consumers incur a utility cost to observe asset values. When consumers observe the value of their wealth, they decide whether to transfer funds between a transactions account from which consumption must be financed and an...

This paper incorporates two empirically-grounded insights into a dynamic life cycle portfolio choice model: the fact that investors forego the opportunity to accumulate job-specific skills when they spend time managing their own money, and the observation that efficiency in financial decision...

We document that the risks and pre-fee returns of broad hedge fund indices can be accurately matched with simple equity index put writing strategies, which provide monthly liquidity and complete transparency over their state-contingent payoff profiles. This nonlinear risk exposure combines with...