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 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 Income Risk Borrowing Contraints and Portfolio Choice written by Luigi Guiso and published by . This book was released on 1994 with total page 41 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 Portfolio Choice Liquidity Constraints and Stock Market Mean Reversion written by Alexander Michaelides and published by . This book was released on 2008 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Portfolio Choice Liquidity Constraints and Stock Market Mean Reversion written by Alex Michaelides and published by . This book was released on 2001 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Temperant Portfolio Choice and Background Risk written by Luc Arrondel and published by . This book was released on 2007 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore empirically whether earnings uncertainty and borrowing constraints deter households from the stockmarket, consistent with the predictions of theoretical studies of portfolio choice in the presence of uninsurable earnings. Recent extensions highlight the importance of the correlation between earnings and financial risks. We use a self-assessed proxy for the correlation from the DELTA-TNS 2002 cross-sectional survey. While income risk does not deter from the stockmarket those households' reporting a negative correlation, it does for those who report a non-negative sign, consistent with economic theory predictions.
Download or read book Consumption and Portfolio Choice Over the Life Cycle written by o F. Cocco and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article solves a realistically calibrated life cycle model of consumption and portfolio choice with non-tradable labor income and borrowing constraints. Since labor income substitutes for riskless asset holdings, the optimal share invested in equities is roughly decreasing over life. We compute a measure of the importance of human capital for investment behavior. We find that ignoring labor income generates large utility costs, while the cost of ignoring only its risk is an order of magnitude smaller, except when we allow for a disastrous labor income shock. Moreover, we study the implications of introducing endogenous borrowing constraints in this incomplete-markets setting.
Download or read book Risk Aversion and Portfolio Choice written by Donald D. Hester and published by . This book was released on 1967 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Life Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk written by Valery Polkovnichenko and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article explores the implications of additive and endogenous habit formation preferences in the context of a life-cycle model of an investor who has stochastic uninsurable labor income. To solve the model, I analytically derive the habit-wealth feasibility constraints and show that they depend on the worst possible path of future labor income and on the habit strength, but not on the probability of the worst income. When there is only a slim chance of a severe income shock, the model implies much more conservative portfolios. The model also predicts that for some low to moderately wealthy households, the portfolio share allocated to stocks increases with wealth. Because of this feature, the model can generate more conservative portfolios for younger than for middle-aged households. The effects of habits on portfolio choice are robust to income smoothing through borrowing or flexible labor supply. One controversial finding is that for high values of the habit strength parameter, usually required for the resolution of asset pricing puzzles in general equilibrium, the life-cycle model predicts counterfactually high wealth accumulation. (JEL: G11, G12).
Download or read book Stock Market Mean Reversion and Portfolio Choice Over the Life Cycle written by Alexander Michaelides and published by . This book was released on 2015 with total page 101 pages. Available in PDF, EPUB and Kindle. Book excerpt: We solve for optimal consumption and portfolio choice in a life-cycle model with short-sales and borrowing constraints, undiversifiable labor income risk and a predictable, time-varying, equity premium and show that the investor pursues aggressive market timing strategies. Importantly, in the presence of stock market predictability, the model suggests that the conventional financial advice of reducing stock market exposure as retirement approaches is correct on average, but ignoring changing market information can lead to substantial welfare losses. Therefore, enhanced target-date funds (ETDFs) that condition on expected equity premia increase welfare relative to target-date funds (TDFs). Out-of-sample analysis supports these conclusions.
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 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 Portfolio Choice and the Debt to income Relationship written by Benjamin M. Friedman and published by . This book was released on 1985 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: The ratio of outstanding debt to gross national product in the United States has shown essentially no time trend over a period measured not in years but in decades. The research reported in this paper indicates that lenders' portfolio behavior exhibits characteristics that could provide aplausible explanation of this phenomenon. Given the long-run stability of the U.S. economy's wealth in relation to income, the question of lenders' behavior explaining the stable aggregate debt-to-income ratio turns on whether investors treat debt and other assets as close or distant substitutes in their portfolios. Analysis of financial assets' respective risk properties indicates that debt and equity are indeed sufficiently distant substitutes for lenders' behavior to confine the debt-to-income ratio within relatively narrow limits. In particular, the substitutability of debt and equity securitiesis sufficiently limited that very large movements in expected return differentials -- movements so large as presumably to elicit offsetting responses from borrowers -- would be required to induce major changes in the debt share of investors' aggregate portfolio, and hence in the economy's aggregate debt-to-income ratio
Download or read book Non market Wealth Background Risk and Portfolio Choice written by Günter Franke and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Handbook of the Economics of Finance written by G. Constantinides and published by Elsevier. This book was released on 2003-11-04 with total page 698 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
