Portfolio Theory and Foreign Investment ? The Role of Non-Marketed Assets

Far from thinking the extent of foreign investment in Australia is large, economists ought perhaps be surprised that the extent is not greater. Certainly, portfolio diversification theory would seem to predict Australians would own a small share of their marketable wealth in Australian marketed assets. We show that when domestic residents in a small open economy possess non-marketable wealth (so that securities markets are not complete), domestic marketed assets may be disproportionately demanded by residents to hedge their non-marketed risks.     

中国股票市场供求关系研究

中国证券市场的资产证券化率已达到54％，但由于流通股本所占比重较小，资产证券化率存存着很大原股权结构泡沫，因此未来证券市场在总市值继续增长的基础上，在解决部分国有股、法人股流通的基础上，流通市值的增幅要远高于总市值的增幅，本文以整个证券市场持续双向扩容为前提，从一级市场和二级市场两个大的方面分析了影响股市供求状况的因素，并对资金供求与市场涨跌之间作了相关性分析。     

Liquidity Creation through Banks and Markets: A Theoretical Perspective on Securitization

Securitization is a process that transforms some traditional non-traded banking assets into marketable securities. To evaluate this process, this paper surveys theories of the intertemporal allocation of funds through demand deposits and anonymous markets, first separately and then in an integrated model. It reviews some work on the role of market frictions and asset characteristics, and concludes that the interplay between these two is crucial in explaining the observed co-existence of demand deposits and anonymous markets. This suggests that securitization is an opportunity, rather than a threat, to banks.
(J.E.L.: D50, G21)     

An essay on the Life Cycle: Characterizing intertemporal behavior with uncertainty,human capital,taxes, durables,imperfect capital markets,and non-separable preferences

This paper formulates a general characterization of a household's portfolio choice and savings behavior in an environment with uncertain future interest rates, prices, wages, and factors influencing tastes. Savings may be invested in three types of assets: financial assets; human capital, which is non-tradable; and consumer durables, in which investment may be partially irreversible. Risk-return relations determine the optimal allocation of resources across assets at a point in time. The optimal intertemporal allocation of resources is determined by a restriction on the planned growth rate for the marginal utility of after-tax wealth, where growth rates depend on rates of time preference and measures of long-term riskless rates of interest. Given special assumptions, this marginal utility follows a martingale process as a consequence of optimizing behavior. Pricing formulae are developed for evaluating shifts in uncertain future income, wage, and price profiles. The relations characterizing portfolio and savings behavior presented here do not rely on particular distributional assumptions; they account for all forms of uncertainty including wage uncertainty induced by human capital investment; they allow for the non-marketability of assets; and the main results apply for very general functional form assumptions for preferences. In later sections, results are extended to incorporate income taxes and to account for a wide variety of imperfections in asset markets.     

Risk Appetite,Home Bias and the Unstable Demand for Emerging Market Assets

Home bias arises when the actual portfolio of an investor consists of a smaller proportion of foreign assets than that predicted by standard portfolio theory for the observed set of risks and returns on available assets. The existence and persistence of home bias undermines the theoretical case for the efficiency of international capital markets. In this paper we use data on UK pension fund portfolios to measure home bias, and find that this is doubly acute in the case of emerging market equity—a bias against overseas assets as a whole being further magnified by a bias against emerging markets within the foreign equity class as a whole. Moreover, contrary to the conventional assumption that risk aversion is both relatively low and stable over time (canonised in neoclassical theory by the derivation of constant relative risk aversion from the utility function itself) our finding that home bias fluctuates over time suggests that risk aversion is in fact time‐variant and path‐dependent. We sketch an alternative Keynesian approach in conclusion.     

国际投资组合选择理论研究进展

国际投资组合选择理论研究的是在一定的假设条件下,当经济实现均衡时,投资者所应持有的本国与外国金融资产的比例。它的发展有5个特征:从追求金融市场的局部均衡到追求经济的一般均衡;从不考虑投资者的存在到考虑投资者个人效用的最大化;从单纯的理论模型构建到结合现实数据进行实证检验;从假设金融市场完全到考虑金融市场不完全的情况;从假设金融市场一体化到考虑金融市场存在分割的情况。     

THE DISSAVING OF ANNUITY WEALTH AND MARKETABLE WEALTH IN RETIREMENT

This paper compares the automatic dissaving of annuity wealth with the discretionary dissaving of marketable wealth that would result from life-cycle consumption behavior by retired persons. In simulations of a life-cycle model based on the isoelastic utility function and realistic parameter values, we find that marketable wealth normally would be dissaved more rapidly than annuity wealth. This suggests that empirical findings that show the opposite relation-slow dissaving of marketable wealth being accompanied by faster dissaving of annuity wealth (or total wealth)-should not be interpreted as evidence that supports the life-cycle theory.     

Ambiguity Aversion and Incompleteness of Financial Markets

It is widely thought that incomes risks can be shared by trading in financial assets. But financial assets typically carry some risk idiosyncratic to them, hence, disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk. However, standard theory argues that diversification would reduce the inconvenience of idiosyncratic risk to arbitrarily low levels. This paper shows that this argument is not robust: ambiguity aversion can exacerbate the tension between the two kinds of risks to the point that classes of agents may not want to trade some financial assets. Thus, theoretically, the effect of ambiguity aversion on financial markets is to make the risk sharing opportunities offered by financial markets less complete than it would be otherwise.     

Are the markets for financial assets efficient? : Evidence for the USA, 1974–1988

The analysis in this paper addresses the efficient markets hypothesis as it pertains to the markets for financial assets. Both weak form efficiency and semistrong form efficiency are investigated for three different financial assets - common stocks, preferred stocks and government bonds. For these assets the markets are indicated to be weak form efficient based on monthly data covering the period January 1974 to June 1988. In the case of semistrong form efficiency, the financial assets markets are efficient with respect to the supply of money for the period after October 1979 but not before. This anomaly is attributed to the different procedures used by the Federal Open Market Committee between the two periods for controlling the growth rate of the money supply.     

Stochastic optimization applied to self-financing portfolio: does bequest matter?

The article studies stochastic optimization of an intertemporal consumption model to allocate financial assets between risky and risk-free assets. We use a stochastic optimization technique, in which utility is maximized subject to a self-financing portfolio constraint. The papers in literature have estimated the errors of Euler equations using data from financial markets. It has been shown that it is sufficient to test the first order Euler equation implied by the model. However, they all assume a constant consumption–wealth ratio that constrains the boundary conditions, hence influencing the coefficient of the risk premium. The main contribution of our article is that we drop the assumption of a constant consumption–wealth ratio. We have an analytical solution using a utility maximization model with a stochastic self-financing portfolio. We introduce a terminal condition of wealth with and without bequests. We also simulate the stochastic optimization with a self-financing portfolio, distinguishing risk neutral investors (γ-low) from high risk averse investors (γ-high). We show that the model with bequest has a higher level of wealth and a smoother decline of consumption over time than the model with no bequest at the end of the period. The model with no bequest has the same level of consumption and a sharp fall at the end of the period. Risk averse agents with high return assets have a higher amount of wealth than risk-neutral agents with lower return assets.     

Ambiguity,uncertainty aversion and equilibrium welfare

Summary. In order to analyse the effect of ambiguity and uncertainty aversion on equilibrium welfare, a two period, pure exchange one good economy is considered. Agents are Choquet-expected-utility maximizers with same convex capacity and strictly concave utility index. It is proven that equilibrium is indeterminate whenever several probabilities in the core of the capacity minimize the expected value of aggregate endowment and not all agents have same expected endowments under those probabilities. It is further shown that small changes in aggregate endowment may have drastic welfare implications. A more general model is considered in the case of no aggregate uncertainty: agents have a set of priors and are uncertainty averse as modelled by Gilboa-Schmeidler [1989]. In the case of complete markets, it is shown that assets have a spread of equilibrium prices similar to the spread of no-arbitrage prices compatible with absence of arbitrage in markets with imperfections.Received: 2 June 2000, Revised: 27 March 2003, JEL Classification Numbers: D46, D59,D60, G12.I have benefited from conversations with L. Epstein, F. Magnien and J. M. Tallon.     

EQUILIBRIUM INDETERMINACY IN A MODEL OF CONSTRAINED FINANCIAL MARKETS

I present a general equilibrium model with incomplete markets in which assets pay in units of a numéraire good. In this economy, agents are constrained to negotiate the same amount of assets in different states of the world. Different from the standard result of economies with real assets, equilibrium indeterminacy can arise, depending on the structure of the financial markets. Equilibrium fails to be unique when it is not possible to transfer wealth between states in which consumers trade a pair of assets that face the same restriction.     

How are Africa's emerging stock markets related to advanced markets? Evidence from copulas

The finance literature provides ample evidence that diversification benefits hinges on dependence between assets returns. A notable feature of the recent financial crisis is the extent to which assets that had hitherto moved mostly independently suddenly moved together resulting in joint losses in most advanced markets. This provides grounds to uncover the relative potential of African markets to provide diversification benefits by means of their correlation with advanced markets. Therefore, we examine the dependence structure between advanced and emerging African stock markets using copulas. Several findings are documented. First, dependence is time-varying and weak for most African markets, except South Africa. Second, we find evidence of asymmetric dependence, suggesting that stock return comovement varies in bearish and bullish markets. Third, extreme downward stock price movements in the advanced markets do not have significant spillover effects on Africa’s emerging stock markets. Our results, implying that African markets, with the exception of South Africa, are immune to risk spillover from advanced markets, improves the extant literature and have implications for portfolio diversification and risk management.     

A systemic approach to modelling and estimating demand for money(ies)

This article uses a consumer theory-based systemic approach to model the demand for monetary liquid asset holdings in Chile. We implement the suggestions and caveats of aggregation theory for the estimation of a demand system for liquid assets (monies) in static, dynamic and time-varying parameters setups. Our results are robust and theoretically consistent with consumer theory restrictions, as a system derived from a utility maximizing framework and a quasi concave utility function. In our estimations, we find stability of interest rate elasticities, in contrast to previous related literature. We also document evidence that long (short) maturity rates are associated to less (more) liquid assets.     

Utility Functions whose Parameters depend on Initial Wealth

Conventional one-period utility functions in Economics assume that initial wealth only enters preferences through the definition of final wealth. Consequently, those utility functions most utilized (i.e., exponential and quadratic) have implausible risk characteristics. The authors characterize a new class of utility function whose risk parameters depend upon initial wealth and obtain several desirable results. In particular, investors with quadratic and exponential utility functions can have decreasing risk aversion, and risky assets in a quadratic utility multi-asset environment do not have to be inferior as implied by the traditional framework.     

TRENDS IN AGGREGATE HOUSEHOLD WEALTH IN THE US., 1900–83

New estimates of aggregate household wealth for the U S. covering selected years in the period from 1900 to 1983 are presented. I find that marketable wealth per capita grew at 1.46 percent per year in real terms over the 1900–83 period, while real wealth per household grew at 0.81 percent per year. However, the growth rate was not uniform over the period, with the rates high during the 1900–29 and the 1949–69 periods, and slow during the other years. Moreover, real per capita wealth actually increased more slowly than real per capita disposable income and real per capita GNP over the century. I also find dramatic changes in the composition of household wealth over the century. In particular, both tangibles and fixed claim assets increased relative to total assets over the period from 1900 to 1983, while equities fell from about half to a quarter. Owner-occupied housing increased only moderately as a proportion of assets, from 17 percent in 1900 to 20 percent in 1983. Unincorporated business equity fell from over a third of total assets to 12 percent. Among financial assets, the biggest relative growth occurred in deposits in financial institutions, which grew from 8 percent in 1900 to 22 percent in 1983. Corporate stock had the most volatile behavior in the household portfolio, growing from 13 percent of total assets in 1900 to 27 percent in 1929, falling to 10 percent in 1949, rising to 22 percent in 1965, and then falling to 11 percent by 1983. Debt as a proportion of total assets rose from 5 percent in 1900 to 16 percent in 1983. Finally, both pension reserves and social security wealth increased relative to marketable assets from virtually zero in 1900 to 12 and 48 percent, respectively.     

Does the currency board matter? US news and Argentine financial market reaction

Using a Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model, we study the effects of the US monetary policy and macroeconomic announcements on Argentine money, stock and foreign exchange markets over the period January 1998 to July 2007. We show, first, that both types of news have a significant impact on all markets. Second, there are noticeable differences in reaction for different subsamples: Argentine money markets were more dependent on US news under the currency board than after it was abandoned as the floating exchange rate partly absorbs spillover effects from the US. Finally, we find that the US-dollar-denominated assets react less to US news than peso-denominated assets, which suggests that the currency board was not completely credible during its final years.     

Determinacy of competitive equilibria in economies with many commodities

This paper provides a framework for establishing the determinacy of equilibria in general equilibrium models with infinitely many commodities and a finite number of consumers and producers. This paper defines a notion of regular economy for such models and gives sufficient conditions on the excess savings equations characterizing equilibria under which regular economies have a finite number of equilibria, each of which is locally stable with respect to perturbations in exogenous parameters, and under which regular economies are generic. This paper also defines two notions of concavity, called uniform concavity and weighted uniform concavity, which generalize standard finite-dimensional notions of differential concavity to an infinite-dimensional setting by prohibiting goods from becoming perfect substitutes asymptotically. For the case of economies in which there are countably many commodities, such as discrete time models or markets with countably many assets, results in this paper show that equilibria are generically determinate as long as utility functions and production sets are uniformly concave or weighted uniformly concave. Received: November 7, 1996; revised version: March 13, 1998     

Risk preference and indirect utility in portfolio-choice problems

We consider a portfolio-choice problem with one risky and one safe asset, where the utility function exhibits decreasing absolute risk aversion (DARA). We show that the indirect utility function of the portfolio-choice problem need not exhibit DARA. However, if the (optimal) marginal propensity to invest is positive for both assets, which is true when the utility function exhibits nondecreasing relative risk aversion, then the DARA property is carried over from the direct to the indirect utility function.     

Observable restrictions of general equilibrium models with financial markets

This paper examines whether general equilibrium models of exchange economies with incomplete financial markets impose restrictions on prices of commodities and assets given the stochastic processes of dividends and aggregate endowments. We show that the assumption of time-separable expected utility implies restriction on the cross-section of asset prices as well as on spot commodity prices. However, a relaxation of the assumption of time separability will generally destroy these restriction.