this paper examines the impact of 2005 presidential election of iran on the tehran stock exchange volatility as a political shock. it uses garch family (fiegarch, egarch, and garch) and markov regime switching (mrs) models as the analytical frameworks for the main the stock daily prices index. our findings confirm statistical validity of arima – fiegarch-x and ar(1) mrs as appropriate specifica...

Stochastic uncertainty can cause coordination problems that may hinder mutually beneficial cooperation. We propose a mechanism of ex-post voluntary transfers designed to circumvent these and ask whether it increase efficiency. To test this transfer mechanism, we implement controlled laboratory experiment based on repeated Ultimatum Game with stochastic endowment. Contrary our hypothesis, find a...

The observed patterns of equity portfolio allocation around the world are at odds with predictions from a capital asset pricing model (CAPM). What has come to be called the “home-bias” phenomenon is that investors tend to hold a disproportionately large share of their equity portfolio in home country stocks as compared with predictions of the CAPM. This paper provides an explanation of the home...

This paper considers the role of monetary policy in mitigating the effects of financial crises. I suppose that the economy occasionally but infrequently experiences crises, where financial variables directly affect the broader real economy. I analyze the formulation of monetary policy under such financial uncertainty, where policymakers recognize the possibility of financial crises, which leads...

The idea of representing choice under uncertainty as a trade-off between mean returns and some measure of risk or uncertainty is fundamental to the analysis of investment decisions. In this paper, we show that preferences can be characterized in this way, even in the absence of objective probabilities. We develop a model of uncertainty averse preferences that is based on a mean and a measure of...

The paper shows that turnover proxies for firm-specific uncertainty, not liquidity risk. I show that turnover is unrelated to several alternative measures of liquidity risk and that liquidity risk factors cannot explain why higher turnover predicts lower future returns. I show that, because high turnover firms have high uncertainty, high turnover firms beat the CAPM when aggregate volatility in...

In this paper we examine the link between stock market uncertainty and monetary policy in the US. There are strong arguments why central banks should account for stock market uncertainty in their strategy. Amongst others, they can maintain the functioning of financial markets and moderate possible economic downswings. To describe the behavior of the Federal Reserve Bank, augmented forward-looki...

We examine optimal and other monetary policies in a linear-quadratic setup with a relatively general form of model uncertainty, so-called Markov jump-linear-quadratic systems extended to include forward-looking variables and unobservable “modes.” The form of model uncertainty our framework encompasses includes: simple i.i.d. model deviations; serially correlated model deviations; estimable regi...

We study a continuous-time problem of optimal public good contribution under uncertainty for an economy with a finite number of agents. Each agent can allocate his wealth between private consumption and repeated but irreversible contributions to increase the stock of some public good. We study the corresponding social planner problem and the case of strategic interaction between the agents and ...

Within a unified framework, the author conducts an empirical investigation of dynamic interrelationships among inflation, inflation uncertainty, relative price dispersion, and output growth. Focusing on the Canadian industrial sector, the author finds weak evidence that inflation uncertainty rises with the level of inflation, with short-run inflation uncertainty minimized at a trend inflation r...