We consider a simple equilibrium model of active fund managers and consumers. Our model features zero net-of-fee alpha in equilibrium. However, using a common, but misspecified, model for the stochastic discount factor (SDF) implies positive measured alpha. This note, thus, warns against...

We consider the problem of finding equilibrium asset prices in a financial market in which a portfolio manager (Agent) invests on behalf of an investor (Principal), who compensates the manager with an optimal contract. We extend a model from Buffa, Vayanos and Woolley (2014) by allowing general...

We study aversion to model ambiguity and misspecification in dynamic portfolio choice. Investors with relative risk aversion gamma 1 fear return persistence, while risk-tolerant investors (0 gamma 1) fear return mean reversion, to confront model misspecification concerns when facing a model...