Conference Agenda

Tips to navigate the program:

  • Overview of all papers on a specific day: click on the day (e.g. Date: Thursday, 24/Aug/2017). To download papers, you will need to access the session by clicking on its title first.
  • Program index: click on the Authors tab below.
  • Location name: to display all sessions taking place in that room
  • Search box: to search for authors, papers and sessions.

Please notes that changes in the program might occur.

If your name is not displayed in the program, please register in our conference system.

If your paper information is not up to date, please send us an email at efa2017@uni-mannheim.de.

 
Session Overview
Session
APT-2: Preferences and Portfolios
Time:
Thursday, 24/Aug/2017:
3:30pm - 5:00pm

Session Chair: Howard Kung, London Business School
Location: O135

Show help for 'Increase or decrease the abstract text size'
Presentations

Financial Innovation and Asset Prices

Adrian Buss1, Raman Uppal2, Grigory Vilkov3

1INSEAD; 2EDHEC; 3Frankfurt School of Finance and Management

Discussant: Bernard Herskovic (UCLA)

Our objective is to understand the effects of financial innovation on asset prices. The traditional view is that financial innovation improves the portfolio diversification of each investor and risk sharing across investors; thus, financial innovation should smooth consumption and reduce the volatility of the stochastic discount factor (SDF) leading to an increase in the price of the new asset and a decrease in its return volatility and risk premium. We show, however, that the traditional view depends crucially on the assumption of homogenous beliefs: when inexperienced investors are less well informed about the new asset class but rationally learn about it, many of these \intuitive" results are reversed: financial innovation can increase portfolio volatility, return volatility, and the risk premium, which decline to the pre-innovation level only slowly over time.

EFA2017-999-APT-2-Buss-Financial Innovation and Asset Prices.pdf

Tail Risk, Robust Portfolio Choice, and Asset Prices

Xing Jin1, Dan Luo2, Xudong Zeng2

1University of Warwick; 2Shanghai University of Finance and Economics

Discussant: Vadim Elenev (Johns Hopkins University)

Equity jumps and consumption disasters exhibit slowly-decaying tail behavior admitting severe downside risk; moreover, heavy-tailed distributions governing these rare events are most challenging to estimate. This paper formulates and solves in closed form a portfolio choice problem in a multi-asset incomplete market characterized by ambiguous jumps. We find that, due to fear of tail incidents, an investor diminishes portfolio diversification, and more so under heavy-tailed jumps which intensify misspecification concerns. In the presence of jump ambiguity, calibration exercises show sizable wealth losses from underestimating tail risk and that heavy-tailed consumption disasters effectively help explain the variance premium and option prices.

EFA2017-1634-APT-2-Jin-Tail Risk, Robust Portfolio Choice, and Asset Prices.pdf

Habits and Leverage

Tano Santos1, Pietro Veronesi2

1Columbia University, NBER, CEPR; 2University of Chicago, NBER, CEPR

Discussant: Moritz Lenel (University of Chicago)

Many stylized facts of leverage, trading, and asset prices follow from a frictionless general equilibrium model that features agents’ heterogeneity in endowments and habit preferences. Our model predicts that aggregate debt increases in good times when stock prices are high, return volatility is low, and levered agents enjoy a “consumption boom.” Our model is consistent with poorer agents borrowing more and with recent evidence on intermediaries’ leverage being a priced factor of asset returns. In crisis times, levered agents strongly deleverage by “fire selling” their risky assets as asset prices drop. Yet, consistently with the data, their debt-to-wealth ratios increase because their wealth decline faster due to higher discount rates.

EFA2017-403-APT-2-Santos-Habits and Leverage.pdf


 
Contact and Legal Notice · Contact Address:
Conference: EFA 2017
Conference Software - ConfTool Pro 2.6.111+TC
© 2001 - 2017 by H. Weinreich, Hamburg, Germany