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One of Keynes' core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more boundedly rational...
Persistent link: https://www.econbiz.de/10010267088
One of Keynes’ core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more bounded rational...
Persistent link: https://www.econbiz.de/10010299492
following parameters are varied: the riskless return, the market standard deviation, the market stock premium, and the skewness … and the kurtosis of the risky return. Both the high extremes and the low extremes are considered. With these figures, the …
Persistent link: https://www.econbiz.de/10011559141
Value at risk (VaR) has become a standard measure of portfolio risk over the last decade. It even became one of the corner stones in the Basel II accord about banks' equity requirements. Nevertheless, the practical application of the VaR concept suffers from two problems: how to estimate VaR and...
Persistent link: https://www.econbiz.de/10010296148
We solve for the optimal portfolio allocation in a setting where both conditional correlation and theclustering of extreme events are considered. We demonstrate that there is a substantial welfare loss indisregarding tail dependence, even when dynamic conditional correlation has been accounted...
Persistent link: https://www.econbiz.de/10010326016
Preference for control affects investment behavior. Participants of laboratory experiments invest different amount of money in a risky asset when face with two different methods of control which have identical payoff structure and probability distribution, but provide different sense of control....
Persistent link: https://www.econbiz.de/10010271187
In this paper we experimentally test skewness preferences at the individual level. Several prospects that can be …. We find that the skewness of a distribution has a significant impact on the decisions. Yet, while skewness has an impact …, its direction differs substantially across subjects: 39% of our subjects act in accordance with skewness seeking and 10 …
Persistent link: https://www.econbiz.de/10010294775
This paper explores the ability of some popular income distributions to model observed skewness and kurtosis. We … present the generalized beta type 1 (GB1) and type 2 (GB2) distributions' skewness-kurtosis spaces and clarify and expand on … previously known results on other distributions' skewness-kurtosis spaces. Data from the Luxembourg Income Study are used to …
Persistent link: https://www.econbiz.de/10010335526
We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the...
Persistent link: https://www.econbiz.de/10010308579
We propose a new decision criterion under risk in which people 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 risk...
Persistent link: https://www.econbiz.de/10010298342