Skilled investors make money off uninformed investors. By acting as intermediaries, they provide a hedge to the uninformed investors themselves. I present a model in which households have imperfect information about expected returns. Non-traded income shocks lead them to rebalance, sometimes at the wrong time. Active funds hedge this risk by trading on superior information. In equilibrium, they...

This paper presents a simple rational expectations model of intertemporal asset pricing relating instability of stock return characteristics to heterogeneity in investor preferences. Heterogeneity is likely to generate declining aggregate relative risk aversion. This leads to variability in expected asset returns, volatility, and autocorrelation. The stronger this variability is, the more heter...

We study a dynamic model of asset pricing which is driven by two characteristic market features: the law of investor demand (e.g. ’buy low, sell high’) and the law of the market institution (which codifies the trading rules under which the market operates). We demonstrate in a simple investor-specialist trading market that these features are sufficient to guarantee an equilibrium where investor...

Brown and Gibbons [Brown, D.P., Gibbons, M.R., 1985. A simple econometric approach for utilitybased asset pricing model. Journal of Finance 40, 359–381], Karson et al. [Karson, M., Cheng, D., Lee, C. F., 1995. Sampling distribution of the relative risk aversion estimator: theory and applications. Review of Quantitative Finance and Accounting 5, 43–54], and Lee et al. [Lee, C.F., Lee, J.C., Ni, ...

The α–maxmin model is a prominent example of preferences under Knightian uncertainty as it allows to distinguish ambiguity and ambiguity attitude. These preferences are dynamically inconsistent for nontrivial versions of α. In this paper, we derive a recursive, dynamically consistent version of the α–maxmin model. In the continuous–time limit, the resulting dynamic utility function can be repre...

the purpose of this paper is to survey of muslim consumer behavior with respect to a given portfolio. in other words, in this paper, a set of specified assets with returns in certain state be considered as the individual's budget constraint. in this regard, factors affecting the portfolio selection by the individual in islamic economics will be discussed. also the subject of consumption in...

This paper studies the information transmission and the effect of ambiguous information and transaction cost on trading volume. We consider a market with risk-averse informed and uninformed investors with CARA utility function and the supply of the risky asset is random. In this model, all investors have ambiguous beliefs about the probability distribution of the risky asset payoff before the s...

Traditionally, portfolio optimization is associated with finding the ideal trade-off between return and risk by maximizing the expected utility. Investor’s preferences are commonly assumed to follow a quadratic or power utility function, and asset returns are often assumed to follow a Gaussian distribution. Investment analysis has therefore long been focusing on the first two moments of the dis...

Emerging markets provide a formidable challenge to current asset pricing theory. The reason that emerging market do not obey standard asset pricing paradigms can be traced to the lack of complete market integration of many of these markets. Importantly, to understand both the cross-section of expected returns as well as the evolution of expected returns through time in these markets, it is nece...