Download or read book Borrowing Constraints Portfolio Choice and Precautionary Motives written by Christis Hassapis and published by . This book was released on 2008 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies effects of income-based and collateral borrowing constraints on wealth accumulation andportfolios. We compare unconstrained and constrained behavior for different types of constraints and degrees of tightness.Income-based constraints can reduce or eliminate effects of earnings risk on wealth accumulation by constraining wealthadjustments to such risk. They can also reverse effects of risk aversion and of temperance on stockholding relative to thoseobtained in unconstrained models. Analogous results hold for collateral constraints, where risky assets play the dual role ofportfolio component and of collateral. Thus, samples containing borrowing-constrained households are likely to underplay or evenreverse the impact of risk aversion and of earnings risk expected on the basis of unconstrained models. This may help explain thefailure of empirical studies to uncover sizeable precautionary effects on wealth and on portfolios.
Download or read book Computational Methods in Decision Making Economics and Finance written by Erricos John Kontoghiorghes and published by Springer Science & Business Media. This book was released on 2013-11-11 with total page 626 pages. Available in PDF, EPUB and Kindle. Book excerpt: Computing has become essential for the modeling, analysis, and optimization of systems. This book is devoted to algorithms, computational analysis, and decision models. The chapters are organized in two parts: optimization models of decisions and models of pricing and equilibria.
Download or read book Income Risk Borrowing Constraints and Portfolio Choice written by Luigi Guiso and published by . This book was released on 1994 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Portfolio Choice and Liquidity Constraints written by Michael Haliassos and published by . This book was released on 2001 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Collateralized Borrowing and Life cycle Portfolio Choice written by Paul Willen and published by . This book was released on 2006 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effects of collateralized borrowing in a realistically parameterized life-cycle portfolio choice problem. We provide basic intuition in a two-period model and then solve a multi-period model computationally. Our analysis provides insights into life-cycle portfolio choice relevant for researchers in macroeconomics and finance. In particular, we show that standard models with unlimited borrowing at the riskless rate dramatically overstate the gains to holding equity when compared with collateral-constrained models. Our results do not depend on the specification of the collateralized borrowing regime: the gains to trading equity remain relatively small even with the unrealistic assumption of unlimited leverage. We argue that our results strengthen the role of borrowing constraints in explaining the portfolio participation puzzle, that is, why most investors do not own stock.
Download or read book Portfolio Choice and Flexibility written by Steven M. Goldman and published by . This book was released on 1975 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Household Portfolios written by Luigi Guiso and published by MIT Press. This book was released on 2002 with total page 552 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theoretical and empirical analysis of the structure of household portfolios.
Download or read book Collateralized Borrowing and Life Cycle Portfolio Choice written by Paul Willen and published by . This book was released on 2008 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effects of collateralized borrowing in a realistically parameterized life-cycle portfolio choice problem. We provide basic intuition in a two-period model and then solve a multi-period model computationally. Our analysis provides insights into life-cycle portfolio choice relevant for researchers in macroeconomics and finance. In particular, we show that standard models with unlimited borrowing at the riskless rate dramatically overstate the gains to holding equity when compared with collateral-constrained models. Our results do not depend on the specification of the collateralized borrowing regime: the gains to trading equity remain relatively small even with the unrealistic assumption of unlimited leverage. We argue that our results strengthen the role of borrowing constraints in explaining the portfolio participation puzzle, that is, why most investors do not own stock.
Download or read book Precautionary Savings Motives and Tax Efficiency of Household Portfolios written by Gene Amromin and published by . This book was released on 2005 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Tax efficiency is the dominant consideration in theoretical portfolio models that allow for both taxable and tax-deferred accounts (TDAs). Investors are advised to locate higher-tax assets in their tax-deferred accounts, which in the Unites States commonly translates into holding bonds inside TDAs and holding equities outside. Yet, observed portfolio allocations are not tax efficient. This paper empirically evaluates the predictions of a recent model designed to bridge the existing gap by explicitly incorporating uninsurable labor income risk and limited accessibility of TDA assets in household decisions [Amromin, 2003]. Together, these elements create tension between household's desire to maintain tax efficient allocations and its concern over the need to make costly TDA withdrawals in the event of bad income draws. This leads some borrowing-constrained households facing labor income risk and TDA access penalties to forgo tax efficiency in favor of allocations that provide more liquidity in bad income states - an outcome labeled as precautionary portfolio choice. The empirical results based on household-level portfolio data from the Survey of Consumer Finances provide evidence that both the choice of whether to hold a tax efficient portfolio and the degree of portfolio tax inefficiency are related to the presence and severity of precautionary motives.
Download or read book Precautionary Portfolio Behavior from a Life Cycle Perspective written by Carol C. Bertaut and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The literature on asset accumulation by households draws a sharp distinction between quot;short-runquot; precautionary motives to buffer annual consumption from annual labor income shocks, and quot;long-runquot; life cycle considerations under labor income certainty. However, empirical estimates of the persistence of shocks to annual incomes imply that households are subject to considerable career uncertainty. We study long-run precautionary motives for life-cycle wealth accumulation and portfolio choice. We compute optimal portfolios under three sources of uncertainty (stock returns, incomes, and lifespan), and explore the separate contributions of several key factors for mean and median asset holdings, including education, risk aversion, household heterogeneity, utility from bequests, time preference, and variance and serial correlation of income shocks. Numerical solutions for households in three education groups are compared with data from the most recent and comprehensive source, the 1992 Survey of Consumer Finances.
Download or read book Journal of Econometrics Volume 97 written by and published by . This book was released on 2000 with total page 426 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Portfolio Choice and Liquidity Constraints written by Alexander Michaelides and published by . This book was released on 2008 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Financial Markets Theory written by Emilio Barucci and published by Springer Science & Business Media. This book was released on 2002-12-11 with total page 488 pages. Available in PDF, EPUB and Kindle. Book excerpt: A presentation of classical asset pricing theory, this textbook is the only one to address the economic foundations of financial markets theory from a mathematically rigorous standpoint and to offer a self-contained critical discussion based on empirical results. Tools for understanding the economic analysis are provided, and mathematical models are presented in discrete time/finite state space for simplicity. Examples and exercises included.
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Portfolio Allocation and Borrowing Constraints written by and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Portfolio Selection Thory the Precautionary Motive and Realisation Dates written by Alan Roe and published by . This book was released on 1974 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Introduction to Computational Economics Using Fortran written by Hans Fehr and published by Oxford University Press. This book was released on 2018 with total page 586 pages. Available in PDF, EPUB and Kindle. Book excerpt: Introduction to Computational Economics Using Fortran is the essential guide to conducting economic research on a computer. Aimed at students of all levels of education as well as advanced economic researchers, it facilitates the first steps into writing programs using Fortran. Introduction to Computational Economics Using Fortran assumes no prior experience as it introduces the reader to this programming language. It shows the reader how to apply the most important numerical methods conducted by computational economists using the toolbox that accompanies this text. It offers various examples from economics and finance organized in self-contained chapters that speak to a diverse range of levels and academic backgrounds. Each topic is supported by an explanation of the theoretical background, a demonstration of how to implement the problem on the computer, and a discussion of simulation results. Readers can work through various exercises that promote practical experience and deepen their economic and technical insights. This textbook is accompanied by a website from which readers can download all program codes as well as a numerical toolbox, and receive technical information on how to install Fortran on their computer.
