Related papers: Asset Prices and Risk Aversion
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
We analyze a simple macroeconomic model where rational inflation expectations is replaced by a boundedly rational, and genuinely sticky, response to changes in the actual inflation rate. The stickiness is introduced in a novel way using a…
This paper studies a continuous-time portfolio selection problem under a general distribution of random risk aversion (RRA). We provide a complete characterization of all deterministic equilibrium strategies in closed form. Our results show…
In recent years, the popularity of artificial intelligence has surged due to its widespread application in various fields. The financial sector has harnessed its advantages for multiple purposes, including the development of automated…
In both finance and economics, quantitative models are usually studied as isolated mathematical objects --- most often defined by very strong simplifying assumptions concerning rationality, efficiency and the existence of disequilibrium…
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
Economic models with input-output networks assume that firm or sector (unit) growth is driven by a weighted sum of trade partners' growth and an independently-drawn idiosyncratic shock. I show that the idiosyncratic risk assumption in a…
This paper investigates the consumption and risk taking decision of an economic agent with partial irreversibility of consumption decision by formalizing the theory proposed by Duesenberry (1949). The optimal policies exhibit a type of the…
We consider the consumption-based asset pricing model, derive a new modified basic pricing equation, and present its successive approximations using the Taylor series expansions of the investor's utility during the averaging time interval.…
We provide an axiomatic foundation for the representation of num\'{e}raire-invariant preferences of economic agents acting in a financial market. In a static environment, the simple axioms turn out to be equivalent to the following choice…
Behavior of systems that are functions of anticipated behavior of other systems, whose own behavior is also anticipatory but homeostatic and determined by hierarchical ordering, which changes over time, of sets of possible environments that…
This study employs expected certainty equivalents to explore the reinsurance and investment issue pertaining to an insurer that aims to maximize the expected utility while being subject to random risk aversion. The insurer's surplus process…
In this work, we develop an equilibrium model for price formation of securities in a market composed of two populations of different types: the first one consists of cooperative agents, while the other one consists of non-cooperative…
An agent-based model of the economy is generalized to incorporate investment and guaranteed income mechanisms in addition to the exchange and distribution mechanisms considered in earlier models. We find realistic wealth distributions and…
Jumps and market microstructure noise are stylized features of high-frequency financial data. It is well known that they introduce bias in the estimation of volatility (including integrated and spot volatilities) of assets, and many methods…
We consider thin incomplete financial markets, where traders with heterogeneous preferences and risk exposures have motive to behave strategically regarding the demand schedules they submit, thereby impacting prices and allocations. We…
Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk,…
Considering congestion games with uncertain delays, we compute the inefficiency introduced in network routing by risk-averse agents. At equilibrium, agents may select paths that do not minimize the expected latency so as to obtain lower…
This note investigates the causes of the quality anomaly, which is one of the strongest and most scalable anomalies in equity markets. We explore two potential explanations. The "risk view", whereby investing in high quality firms is…