The well-documented nonparticipation in the stock market by many households and the highly negative correlation between stock and housing investment are puzzling. We show that stock and housing markets are cointegrated, and thus households significantly increase housing expenditure, reduce stock...

In this paper we generalize the following result of McDonald and Siegel (1986) on optimal investment: it is optimal for an investor to invest when project cash flows exceed a certain threshold. We have other results that refine or extend the result of McDonald and Siegel (1986) by integrating...

In this paper, we develop an analytically tractable dynamic model of optimal consumption and savings decisions with disastrous income risk. We first empirically explore the relations among consumption changes, aggregate income, disaster shock severity, and fiscal measures in 55 countries during...

Integrating a Value-at-Risk constraint on a fund manager's wealth and ambiguity, we present a model of optimal portfolio choice for a fund manager who allocates her wealth between risky and riskless assets. When a fund manager controls asset composition, her reactions di er with respect to an...