Portfolio and Consumption Decisions Under Ambiguity for Regime Switching Mean Returns PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Portfolio and Consumption Decisions Under Ambiguity for Regime Switching Mean Returns PDF full book. Access full book title Portfolio and Consumption Decisions Under Ambiguity for Regime Switching Mean Returns by Hening Liu. Download full books in PDF and EPUB format.
Author: Hening Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 34
Get Book Here
Book Description
Author: Hening Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 34
Get Book Here
Book Description
Author: Hening Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
Get Book Here
Book Description
I examine a continuous-time intertemporal consumption and portfolio choice problem under ambiguity, where expected returns of a risky asset follow a hidden Markov chain. Investors with Chen and Epstein''s (2002) recursive multiple priors utility possess a set of priors for unobservable investment opportunities. We explicitly characterize optimal consumption and portfolio policies in terms of the Malliavin derivatives and stochastic integrals. When the model is calibrated to U.S. stock market data, I find that continuous Bayesian revisions under incomplete information generate ambiguity-driven hedging demands that mitigate intertemporal hedging demands. In addition, ambiguity aversion magnifies the importance of hedging demands in the optimal portfolio policies. Out-of-sample experiments demonstrate the economic importance of accounting for ambiguity.
Author: Jun Tu
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
Get Book Here
Book Description
The stock market displays regime switching between upturns and downturns. This paper provides a Bayesian framework for making portfolio decisions that takes this regime switching into account, together with asset pricing model uncertainty and parameter uncertainty. The findings reveal that the economic value of accounting for regimes is substantially independent of whether or not model and parameter uncertainties are incorporated: the certainty-equivalent losses associated with ignoring regime switching are generally above 2% per year, and can be as high as 10%. These results suggest that the more realistic regime switching model is fundamentally different from the commonly used single-state model, and hence should be employed instead in portfolio decisions irrespective of concerns about model or parameter uncertainty.
Author: Jessica A. Wachter
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
Get Book Here
Book Description
This paper solves, in closed form, the optimal portfolio choice problem for an investor with utility over consumption under mean-reverting returns. Previous solutions either require approximations, numerical methods, or the assumption that the investor does not consume over his lifetime. This paper breaks the impasse by assuming that markets are complete. The solution leads to a new understanding of hedging demand and of the behavior of the approximate log-linear solution. The portfolio allocation takes the form of a weighted average and is shown to be analogous to duration for coupon bonds. Through this analogy, the notion of investment horizon is extended to that of an investor who consumes at multiple points in time.
Author: Hening Liu
Publisher:
ISBN:
Category : Individual investors
Languages : en
Pages : 166
Get Book Here
Book Description
Author: Deniz Kebabci
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
Get Book Here
Book Description
[This paper proposes a Gibbs Sampling approach to modeling returns on industry portfolios. We examine how parameter uncertainty in the returns process with regime shifts affects the optimal portfolio choice in the long run for a static buy-and-hold investor. We find that after we incorporate parameter uncertainty and take into account the possible regime shifts in the returns process, the allocation to stocks can be smaller in the long run. We find this result to be true for both the NASDAQ portfolio and the individual high tech and manufacturing sector portfolios. Finally, we include dividend yields and the Treasury bill rate as predictor variables in our model with regime switching returns and find that the effect of these predictor variables is minimal: the allocation to stocks is still generally smaller in the long run.
Author: H. Kent Baker
Publisher: Oxford University Press
ISBN: 019931151X
Category : Business & Economics
Languages : en
Pages : 798
Get Book Here
Book Description
Portfolio management is an ongoing process of constructing portfolios that balances an investor's objectives with the portfolio manager's expectations about the future. This dynamic process provides the payoff for investors. Portfolio management evaluates individual assets or investments by their contribution to the risk and return of an investor's portfolio rather than in isolation. This is called the portfolio perspective. Thus, by constructing a diversified portfolio, a portfolio manager can reduce risk for a given level of expected return, compared to investing in an individual asset or security. According to modern portfolio theory (MPT), investors who do not follow a portfolio perspective bear risk that is not rewarded with greater expected return. Portfolio diversification works best when financial markets are operating normally compared to periods of market turmoil such as the 2007-2008 financial crisis. During periods of turmoil, correlations tend to increase thus reducing the benefits of diversification. Portfolio management today emerges as a dynamic process, which continues to evolve at a rapid pace. The purpose of Portfolio Theory and Management is to take readers from the foundations of portfolio management with the contributions of financial pioneers up to the latest trends emerging within the context of special topics. The book includes discussions of portfolio theory and management both before and after the 2007-2008 financial crisis. This volume provides a critical reflection of what worked and what did not work viewed from the perspective of the recent financial crisis. Further, the book is not restricted to the U.S. market but takes a more global focus by highlighting cross-country differences and practices. This 30-chapter book consists of seven sections. These chapters are: (1) portfolio theory and asset pricing, (2) the investment policy statement and fiduciary duties, (3) asset allocation and portfolio construction, (4) risk management, (V) portfolio execution, monitoring, and rebalancing, (6) evaluating and reporting portfolio performance, and (7) special topics.
Author: Jessica Wachter
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Author: Nengjiu Ju
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
Get Book Here
Book Description
We propose a novel generalized recursive smooth ambiguity model which allows a three-way separation among risk aversion, ambiguity aversion, and intertemporal substitution. We apply this utility to a consumption-based asset pricing model in which consumption and dividends follow hidden Markov regime-switching processes. Our calibrated model can match the mean equity premium, the mean riskfree rate, and the volatility of the equity premium observed in the data. In addition, our model can generate a variety of dynamic asset pricing phenomena, including the procyclical variation of price-dividend ratios, the countercyclical variation of equity premia and equity volatility, and the mean reversion of excess returns. The keyintuition is that an ambiguity averse agent behaves pessimistically by attaching more weight to the pricing kernel in bad times when his continuation values are low.
Author: Massimo Guidolin
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
Get Book Here
Book Description
We examine asset allocation decisions under smooth ambiguity aversion when an investor has a prior degree of belief in an asset pricing model (e.g., the domestic CAPM). Different from a Bayesian approach, the investor separately relies on the conditional distribution of returns and on the posterior over parameters to make decisions, rather than on the predictive distribution of returns that integrates priors and likelihood information. We find that in the perspective of US investors, ambiguity aversion generates strong home bias in equity holdings, regardless of beliefs in the CAPM or risk aversion. Results become stronger under regime-switching investment opportunities.
