Can risk aversion explain schooling attainments? Evidence from Italy

Using unique Italian panel data, in which individual differences in behavior toward risk are measured from answers to a lottery question, we investigate if (and to what extent) risk aversion can explain differences in schooling attainments. We formulate the schooling decision process as a reduced-form dynamic discrete choice, which we estimate flexibly. We analyze how grade transition from one level to the next varies with preference heterogeneity (risk aversion), parental human capital, socioeconomic variables and persistent unobserved (to the econometrician) heterogeneity. We find that differences in attitudes toward risk account for a modest portion of the probability of entering higher education.     

Stochastic equilibria of an asset pricing model with heterogeneous beliefs and random dividends

We investigate dynamical properties of a heterogeneous agent model with random dividends and further study the relationship between dynamical properties of the random model and those of the corresponding deterministic skeleton, which is obtained by setting the random dividends as their constant mean value. Based on our recent mathematical results, we prove the existence and stability of random fixed points as the perturbation intensity of random dividends is sufficiently small. Furthermore, we prove that the random fixed points converge almost surely to the corresponding fixed points of the deterministic skeleton as the perturbation intensity tends to zero. Moreover, simulations suggest similar behaviors in the case of more complicated attractors. Therefore, the corresponding deterministic skeleton is a good approximation of the random model with sufficiently small random perturbations of dividends. Given that dividends in real markets are generally very low, it is reasonable and significant to some extent to study the effects of heterogeneous agents’ behaviors on price fluctuations by the corresponding deterministic skeleton of the random model.     

Asset price dynamics with heterogeneous beliefs and local network interactions

In this paper we investigate the effects of network topologies on asset price dynamics. We introduce network communications into a simple asset pricing model with heterogeneous beliefs. The agents may switch between several belief types according to their performance. The performance information is available to the agents only locally through their own experience and the experience of other agents directly connected to them. We model the communications with four commonly considered network topologies: a fully connected network, a regular lattice, a small world, and a random graph. The results show that the network topologies influence asset price dynamics in terms of the regions of stability, amplitudes of fluctuations and statistical properties.     

Aggregate stock market behavior and investors’ low risk aversion

This paper studies whether investors’ high risk aversion can be avoided in a representative-agent model that is able to explain aggregate stock market behavior in the US financial market. We present a consumption-based asset pricing model with a representative agent who has a ‘catching up with the Joneses’ preference to show that high risk aversion can be avoided in a representative-agent model that can help explain many of the empirically observed properties of the aggregate stock market return, including the equity premium and risk-free rate puzzles, the predictability of long-horizon stock returns, and the ‘leverage effect’ in return volatility.     

Asset prices in an exchange economy when agents have heterogeneous homothetic recursive preferences and no risk free bond is available

We study a pure exchange economy under incomplete markets where households have heterogeneous homothetic recursive preferences and lending and borrowing are precluded. We fully characterize the properties of the efficient allocations and the equilibrium asset price. The ownership distribution dynamics reveal the emergence of a dominant agent, who after some finite time, remains the only investor that increases asset holdings until asymptotically owning the entire wealth. Investors can be ranked according to a unique parameter that aggregates agents’ preference characteristics and we show how time discount rate, attitude towards risk and intertemporal substitution contribute to capital accumulation.     

Heterogeneous beliefs and the choice between private restructuring and formal bankruptcy

We present a theory for the puzzling issue regarding why certain firms in financial distress, prefer a costlier formal bankruptcy procedure over direct renegotiations. We show that claimholders’ heterogeneous beliefs about the results of a formal plan and about judicial discretion may lead to such a preference. The proposed model predicts which resolution would be chosen under claimholders’ beliefs about the determinants driving the outcome of a formal procedure, such as the extent to which firm value is affected by bankruptcy, the likelihood of deviation from the absolute priority rule, and the probability of the court adopting a reorganization plan.     

On compensation for risk aversion and skewness affection in wages

This paper presents extensive empirical testing of the hypothesis that greater post-schooling earnings risk requires higher expected returns. Expanding on this notion, on the basis of utility theory, we predict that workers not only care about risk but also about the skewness in the distribution of the compensation paid: workers exhibit risk aversion and skewness affection. To test these hypotheses, this paper carefully develops various measures of risk and skewness by occupational/educational classification of the worker and finds supportive evidence: for men, wages rise with occupational earnings variance and decrease with skewness, for women only the negative effect of skewness is significant.     

Relative risk aversion and the transmission of financial crises

We study how investor behavior affects the transmission of financial crises. If investors exhibit decreasing relative risk aversion, then negative wealth shocks increase the risk premium required to hold risky assets. We integrate this into a second generation model of currency crises which allows for contagion through changes in fundamentals. Investor behavior can be a transmission channel of financial crises, as changes in risk premia increase the coverage ratio and makes the defense of a peg less attractive for the policy maker. The feedback effect of the risk premia on the probability of devaluation also makes multiple equilibria more likely. The possible stabilization effects of capital controls and a Tobin tax on the international transmission of financial crises are also studied.     

Dynamics of quote and deal prices in the foreign exchange market

We empirically investigate price fluctuations of yen-dollar exchange rate using the high-frequency data recorded in the electronic broking system for seven-year period. The distribution of quote price changes has symmetric fat-tails approximated by a power law; however, that of deal price is asymmetrical. The autocorrelation function and diffusion of price changes indicate that quote price exhibits anti-correlation feature in short time scale, whereas deal price is essentially uncorrelated. The bid-ask spread shows power-law distribution and long range temporal correlations similar to that observed in absoute price changes.      

Dynamic contracting under imperfect public information and asymmetric beliefs

We develop a dynamic principal–agent model to show how imperfect public information and asymmetric beliefs about payoff-relevant parameters, agency conflicts, and the agent's implicit incentives to influence the principal's posterior beliefs through his unobservable actions interact to affect optimal dynamic contracts. We make a methodological contribution to the literature by solving the continuous-time contracting problem using a discrete-time approximation approach. We obtain a simple characterization of optimal renegotiation-proof contracts in terms of the solution to a nonlinear ordinary differential equation (ODE). We then exploit the properties of the ODE to derive a number of novel implications for the dynamics of long-term contracts that alter the intuition gleaned from the previous literature. Optimism has a first-order impact on incentives, investment and output that could reconcile the “private equity” puzzle. Consistent with empirical evidence, the interaction between asymmetric beliefs, risk-sharing and adverse selection costs could cause the time-paths of the agent's incentive intensities to be increasing or decreasing. Our results also suggest that the incorporation of imperfect public information and asymmetric beliefs could potentially reconcile empirical evidence of an ambiguous relation between risk and incentives, and a non-monotonic relation between firm value and incentives. Permanent and transitory components of risk have differing effects on incentives, which suggest that empirical investigations of the link between risk and incentives should appropriately account for different components of risk.     

Optimal consumption and investment under time-varying relative risk aversion

We consider the continuous time consumption-investment problem originally formalized and solved by Merton in case of constant relative risk aversion. We present a complete solution for the case where relative risk aversion with respect to consumption varies with time, having in mind an investor with age-dependent risk aversion. This provides a new motivation for life-cycle investment rules. We study the optimal consumption and investment rules, in particular in the case where the relative risk aversion with respect to consumption is increasing with age.     

Traditional beta, downside risk beta and market risk premiums

The article develops a downside risk asset-pricing model, which is based on Conditional-VaR (Mean-shortfall) risk measure. As in the traditional model the model leads to a monetary separation and yields a CVaR beta analogous to the traditional beta. An empirical study indicates that CVaR beta, which considers also downside risk, has greater explanatory power than the traditional beta. This is especially true in the case of a bearish market. Moreover, a combined model, which uses both betas, outperforms both the traditional and the CVaR models.The results indicate that in a bullish economy, risk premiums may be partially explained by the traditional beta. However, in a depressed economy investors are most likely more concerned about downside risk, which is poorly captured by the traditional beta. This downside risk can best be captured by CVaR beta, which is based on historical data and avoids assuming any prior distribution.     

论市场经济条件下的宏观与微观经济间的关系

随着经济全球化的发展,传统意义上的宏观经济观念已经有所变化,它已经超越了一个国家,甚至一个地区而具有世界的意义。同样,微观的内涵也大大丰富了,超越了过去的微观。对于社会主义国家来说,微观已不是原有的国家和集体企业了,股份制和个体企业的大量出现使微观领域更加复杂了。全球经济结构产权私有化、经营专业化和公用事业竞争化。把国家干预与市场调节结合起来,使宏观经济与微观经济逐步协调、融合,已成为经济发展的一种必然趋势。     

Sharing risk within and across countries: the role of labor market institutions

This paper studies the effect of labor market institutions on within- and cross-country risk sharing, using a model of international trade in risky assets modified to include a subset of agents, labor-owners who do not access financial markets, and employment security provisions. Labor market, institutions, by promoting within-country risk-shifting arrangements between agents with or without, access to financial markets, reduce the fluctuations of non-tradable labor incomes and amplify the, fluctuations of capital incomes. Capital flows become more volatile across countries, and if the, configuration of labor markets differs across countries, capital-owners bear the burden of systematic, undiversifiable world aggregate uncertainty.     

Selective hedging with market views and risk limits: the case of Hydro-Quebec

This study presents how Hydro-Quebec manages its short-term financial risks. The quantitative hedging model is articulated over forward and volatility premia and constrained by a yearly risk limit provided by the firm's Finance Committee. The hedging solutions provide the optimal linear hedging parameters and option strike levels. The second part of the paper is devoted to a theoretical analysis of the sensitivity of the optimal solutions to changes in the premia, by means of the general implicit function theorem.     

竞争视角下市场占有均衡：理论模型与现实解释

市场占有行为是经济主体的理性行为,市场占有的实现方式有市场竞争与政策约束。文章构建市场占有均衡模型,指出经济主体基于自身的市场占有偏好进行市场占有,并根据市场收益的增减或发展目标的重新设计分别对市场占有偏好进行自发性纠正、战略性纠正,从而形成新的市场占有均衡。市场占有均衡因对手的竞争反应的差异而表现出不同的均衡状态。基于市场占有均衡模型,文章以新的角度审视了公共产品供给不足、厂商恶性竞争及国企改革等经济现象。