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| Author | : Alex Michaelides |
| Publisher | : |
| Total Pages | : 60 |
| Release | : 2001 |
| Genre | : Business enterprises |
| ISBN | : |
| Author | : Alexander Michaelides |
| Publisher | : |
| Total Pages | : 49 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
This paper solves numerically for the optimal consumption and portfolio choice of a long-horizon investor facing short-sales and borrowing constraints, undiversifiable labor income risk and a predictable time varying equity premium. The investor pursues aggressive market timing strategies; a speculative increase in savings arises when stock returns are expected to be high and conversely when future returns are expected to be low. Positive correlation between permanent earnings shocks and stock return innovations generates a substantial hedging demand for the riskless asset for risk averse investors. Hedging demands arising from the correlation of permanent earnings shocks and the factor innovation and from the correlation between the factor innovation and the stock market shock are evaluated and are found to be small in magnitude. Conversely, asset demand changes that arise from relaxing the liquidity constraints are substantial.
| Author | : Alex Michaelides |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 2001 |
| Genre | : |
| ISBN | : |
| Author | : Michael Haliassos |
| Publisher | : |
| Total Pages | : 58 |
| Release | : 2001 |
| Genre | : Business enterprises |
| ISBN | : |
| Author | : John Y. Campbell |
| Publisher | : OUP Oxford |
| Total Pages | : 272 |
| Release | : 2002-01-03 |
| Genre | : Business & Economics |
| ISBN | : 019160691X |
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
| Author | : Shmuel Kandel |
| Publisher | : |
| Total Pages | : 29 |
| Release | : 2004 |
| Genre | : Consumption (Economics) |
| ISBN | : |
| Author | : Alexander Michaelides |
| Publisher | : |
| Total Pages | : 41 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
In this paper, we study the infinite-horizon model of household portfolio choice under liquidity constraints and revisit the portfolio specialization puzzle for impatient consumers with access to riskless and risky assets. We consider a labor income process that allows us to decompose the consumption and portfolio effects of permanent and transitory shocks to labor income and show their interaction with liquidity constraints and their relative importance in producing precautionary effects and the portfolio specialization result. We show why habit persistence and risk aversion cannot resolve the puzzle and argue that positive correlation between earnings shocks and stock returns is unlikely to provide a plausible resolution. We then offer an alternative explanation for observed stock holding patterns and the slow emergence of an equity culture. Specifically, we find that relatively small, fixed, stock market entry costs are sufficient to deter households from participating in the stock market. Such entry costs could arise, for example, from informational considerations, sign-up fees, and investor inertia.
| Author | : Francis A. Longstaff |
| Publisher | : |
| Total Pages | : |
| Release | : 2001 |
| Genre | : |
| ISBN | : |
Traditional models of portfolio choice assume that investors can continuously trade unlimited amounts of securities. In reality, investors face liquidity constraints. We analyze a model where investors are restricted to trading strategies that are of bounded variation. An investor facing this type of illiquidity behaves very differently from an unconstrained investor. A liquidity-constrained investor endogenously acts as if he faced borrowing and short-selling constraints, and may take riskier positions than in liquid markets. We solve for the shadow cost of illiquidity and show that large price discounts can be sustained in a rational model.
| Author | : Bin Li |
| Publisher | : CRC Press |
| Total Pages | : 227 |
| Release | : 2018-10-30 |
| Genre | : Business & Economics |
| ISBN | : 1482249642 |
With the aim to sequentially determine optimal allocations across a set of assets, Online Portfolio Selection (OLPS) has significantly reshaped the financial investment landscape. Online Portfolio Selection: Principles and Algorithms supplies a comprehensive survey of existing OLPS principles and presents a collection of innovative strategies that leverage machine learning techniques for financial investment. The book presents four new algorithms based on machine learning techniques that were designed by the authors, as well as a new back-test system they developed for evaluating trading strategy effectiveness. The book uses simulations with real market data to illustrate the trading strategies in action and to provide readers with the confidence to deploy the strategies themselves. The book is presented in five sections that: Introduce OLPS and formulate OLPS as a sequential decision task Present key OLPS principles, including benchmarks, follow the winner, follow the loser, pattern matching, and meta-learning Detail four innovative OLPS algorithms based on cutting-edge machine learning techniques Provide a toolbox for evaluating the OLPS algorithms and present empirical studies comparing the proposed algorithms with the state of the art Investigate possible future directions Complete with a back-test system that uses historical data to evaluate the performance of trading strategies, as well as MATLAB® code for the back-test systems, this book is an ideal resource for graduate students in finance, computer science, and statistics. It is also suitable for researchers and engineers interested in computational investment. Readers are encouraged to visit the authors’ website for updates: http://olps.stevenhoi.org.
| Author | : Emilio Barucci |
| Publisher | : Springer |
| Total Pages | : 843 |
| Release | : 2017-06-08 |
| Genre | : Mathematics |
| ISBN | : 1447173228 |
This work, now in a thoroughly revised second edition, presents the economic foundations of financial markets theory from a mathematically rigorous standpoint and offers a self-contained critical discussion based on empirical results. It is the only textbook on the subject to include more than two hundred exercises, with detailed solutions to selected exercises. Financial Markets Theory covers classical asset pricing theory in great detail, including utility theory, equilibrium theory, portfolio selection, mean-variance portfolio theory, CAPM, CCAPM, APT, and the Modigliani-Miller theorem. Starting from an analysis of the empirical evidence on the theory, the authors provide a discussion of the relevant literature, pointing out the main advances in classical asset pricing theory and the new approaches designed to address asset pricing puzzles and open problems (e.g., behavioral finance). Later chapters in the book contain more advanced material, including on the role of information in financial markets, non-classical preferences, noise traders and market microstructure. This textbook is aimed at graduate students in mathematical finance and financial economics, but also serves as a useful reference for practitioners working in insurance, banking, investment funds and financial consultancy. Introducing necessary tools from microeconomic theory, this book is highly accessible and completely self-contained. Advance praise for the second edition: "Financial Markets Theory is comprehensive, rigorous, and yet highly accessible. With their second edition, Barucci and Fontana have set an even higher standard!"Darrell Duffie, Dean Witter Distinguished Professor of Finance, Graduate School of Business, Stanford University "This comprehensive book is a great self-contained source for studying most major theoretical aspects of financial economics. What makes the book particularly useful is that it provides a lot of intuition, detailed discussions of empirical implications, a very thorough survey of the related literature, and many completely solved exercises. The second edition covers more ground and provides many more proofs, and it will be a handy addition to the library of every student or researcher in the field."Jaksa Cvitanic, Richard N. Merkin Professor of Mathematical Finance, Caltech "The second edition of Financial Markets Theory by Barucci and Fontana is a superb achievement that knits together all aspects of modern finance theory, including financial markets microstructure, in a consistent and self-contained framework. Many exercises, together with their detailed solutions, make this book indispensable for serious students in finance."Michel Crouhy, Head of Research and Development, NATIXIS
