Asset allocation strategies which utilize stop-loss and stop-gain rules may dramatically decrease risk and even increase long-term return relative to passive investing. I introduce an asset allocation strategy which shifts portfolio weights based on simplistic stop rules. The two-asset (S&P...

Contrary to the recently reported US evidence of a negative premium, this study shows that China's economic policy uncertainty (EPU) commands a positive equity risk premium. Motivated by the observation that Chinese stock traders have a strong risk appetite and a cognitive bias, we modify the...

In the probabilistic risk aversion approach, risks are presumed as random variables with known probability distributions. However, in some practical cases, for example, due to the absence of historical data, the inherent uncertain characteristic of risks or different subject judgements from the...

Climate science finds that the trend towards higher global temperatures exacerbates the risks of droughts. We investigate whether the prices of food stocks efficiently discount these risks. Using data from thirty-one countries with publicly-traded food companies, we rank these countries each...

A multiple agent model is developed where traders must receive, process, and send communications to and from a distant market. This model highlights the importance that information theory's communication constraints have on the level of price uncertainty each agent faces. The collective...

Distortions introduced by limited liability towards higher volatility and kurtosis, increased liability skewness, reduced asset skewness and an incentive to decorrelate assets from liabilities are demonstrated in the context of a stylized model. The concept of acceptable risks operationalized by...

One measure of the health of the Social Security system is the difference between the market value of the trust fund and the present value of benefits accrued to date. How should present values be computed for this calculation in light of future uncertainties? We think it is important to use...

This paper revisits what we know about the risk of stocks thanks to a non-US long term database. French stock market risk observed over the last 150 years, presents a long-term rise. Despite peace and economic stability, market risk has never converged to levels seen pre-1914. Reversely, the...

We investigate the relation between the risk premia observed in forward foreign exchange markets and international equity markets using the Arbitrage Pricing Theory. If returns on well-diversified equity portfolios explain movements in agents' intertemporal marginal rate of substitution then the...

This paper studies a dynamic equilibrium model of asset prices in a partially observable exchange economy. It shows that the precautionary savings motive in response to estimation uncertainty can dominate the risk aversion effect, resulting in the reduction of the equity premium over short...