As the dependence structure (i.e. the copula) among the assets is ...xed, one might think that the riskier the assets, the riskier the portfolio. Surprisingly enough, this conjecture turns out to be false even for coherent risk measures and normal returns. We show that two conditions are able to preserve risk ordering under the portfolio: convexity for the risk measure and conditional increasin...

This paper studies a discrete-time financial model with or without transaction costs, in which only partial information can be observed. Partial information model means that the investors in the market can observe no more information except the stock prices. This model has been investigated in Karatzas and Xue (1991), Lakner (1995, 1998), and Cheng (2004), etc. Applying stochastic filtering the...

We analyze the problem of real optimal asset allocation for a pension fund maximising the expected CRRA utility of its real disposable wealth. The financial horizon of the analysis coincides with the random death time of a representative subscriber. We consider a very general setting where there exists a stochastic investment opportunity set together with stochastic contributions and pensions a...

Monte Carlo simulations are used to demonstrate that a very attractive tax-based trading strategy is to realize all capital losses, using excess losses to offset realized gains to rebalance the portfolio. This strategy increases the mean and median return by taking advantage of the tax-deductibility of losses, and mitigates risk by allowing low-cost portfolio rebalancing. This portfolio rebalan...

In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the optimal investment policy, its implied welfare, liquidity premium, and trading volume. At the first order, the liquidity premium equals the spread, times share ...

Though risk aversion and the elasticity of intertemporal substitution have been the subjects of careful scrutiny, the long-run risks literature as well as the broader literature using recursive utility to address asset pricing puzzles has ignored the full implications of their parameter specifications. Recursive utility implies that the temporal resolution of risk matters and a quantitative ass...

This paper shows that, in markets with transaction costs, even if a redundant security does not even save individual investors’ total costs for their security trading, the prices of the other securities may well be different were it to not be available for trade, resulting in a different equilibrium consumption allocation. In this sense, a redundant security may give rise to the divergence of i...

Close to 30% of the US population experiences at least one mental or substance abuse disorder each year. Given the prevalence of mental health issues, this paper analyzes the role of mental health and cognitive functioning in household portfolio choice decisions. Generally, we find that households affected by mental health issues decrease investments in risky instruments. Various mental health ...

We consider portfolio allocation in which the underlying investment instruments are hedge funds. We consider a family of utility functions involving the probability of outperforming a benchmark and expected regret relative to another benchmark. Non-normal return vectors with prescribed marginal distributions and correlation structure are modeled and simulated using the normal-to-anything method...

We analyze a model in which traders have different trading opportunities and learn information from prices. The difference in trading opportunities implies that different traders may have different trading motives when trading in the same market—some trade for speculation and others for hedging—and thus they may respond to the same information in opposite directions. This implies that adding mo...