Asset Allocation Advice: Reconciling Expected Utility and Shortfall Risk Researchers studying the asset allocation problem for long-term investors have employed di®erent investor criterion functions. Some analyses have been based on maximization of expected utility. The most commonly used utilities are quadratic utility, which yields the ubiquitous mean-variance utility function underlying \mod...

We provide a random variable characterization of the necessary and sufficient conditions for a shift of the distribution of rate of return on the risky asset in the two asset portfolio problem to reduce demand for all risk–averse expected utility maximizing investors. We provide random variable characterizations of the shifts that reduce both demand and expected utility for all risk–averse inve...

This paper proposes an econometric procedure that allows the estimation of the pricing kernel without either any assumptions about the investors preferences or the use of the consumption data. We propose a model of equity price dynamics that allows for (i) simultaneous consideration of multiple stock prices, (ii) analytical formulas for derivatives such as futures, options and bonds, and (iii) ...

We extend and unify existing international asset pricing models for perfect capital markets by allowing both exchange rates and inflation rates to be stochastic and investors to consume both tradable and nontradable goods. We show that country-specific demand for risky assets arises from two sources: PPP-deviationrate differential risks and nontradable-good-specific inflation-rate-differential ...

We develop a flexible simulation-based optimization (SBO) method for the construction of optimal portfolios including hedge funds and other types of alternative investments. This method takes into account the skew and kurtosis of asset returns, the time series structure of asset returns, and the asymmetric nature of investor preferences for gains versus losses. Johnson (1949) translation is use...

The VAR approach for testing present value models is applied to a heterogeneousagent asset pricing model, using historical observations of the S&P500 index. Besides rational long-term investors, that value assets according to expected dividends, the model features rational and contrarian speculators. Agents choose their strategy based on evolutionary considerations. Supplementing the standard p...

We price moneyness-based portfolio returns on the LIBOR futures options in an Intertemporal CAPM framework as an extension of the pricing kernel approach. In contrast to existing studies for pricing index options, our results show that only the real interest rate is significant in the pricing kernel for LIBOR options. The polynomial pricing kernel with linear interpretation outperforms the iso-...

Conditional tests of the International CAPM in previous studies (e.g., Harvey, 1991) help identify predictability but not causality. In this paper, we take an event-study approach to examine if the world market risk premium is particularly higher on prescheduled USmacroeconomic announcement days. Empirically, we apply the Savor andWilson (2014) methodology to daily US stocks as well as foreign ...

In contrast to the existing literature on repeated games that assumes a Þxed discount factor, I study an environment in which it is more realistic to assume a ßuctuating discount factor. In a repeated oligopoly, as the interest rate changes, so too does the degree to which Þrms discount the future. I characterize the optimal tacit collusion equilibrium when the discount factor changes over time...