Finance theory: A house without windows

In this paper we aim to build on the existing critical finance literature by exploring how finance theory maintains both its momentum and hegemony. More specifically, by using an example at the core of finance theory (namely, portfolio asset allocation) we illustrate how finance keeps itself artificially alive by taking data from the outside world, often ignoring the rich complexities of the context which has given rise to the data, and using these ‘new facts’ to create puzzles which then lead onto more activity to see how the accepted core can or cannot be extended to incorporate the ‘new facts’. Against this process the paper then shows how the more obvious approach of engaging with the various participants can lead to greater insight and understanding. Given this approach, facts are not just anomalies which need to be explained away but part of the environment which help us to understand the various activities of individuals and organisations. The paper concludes by outlining a research agenda which develops a number of streams of research in critical finance and needs to be addressed in an open manner if traditional finance is to move from being closed and increasingly moribund to a subject which captures the vibrancy and dynamism of financial activities/markets across the globe.     

浙江中小企业的现状、问题及发展对策

沐浴着新世纪的阳光 ,新一代的思想政治工作者接受着瞬息万变的政治、经济、科技、道德、文化辐射 ,该怎样面对新实际、新情况 ,探索工作新思路、新途径成为现实课题。本文试图提出学习型思想政治工作者概念 ,以研究新时期思想政治工作者如何跨越“老政工”干部形象光环 ,塑造     

Do Intra-Household Effects Generate the Food Stamp Cash-Out Puzzle?

Previous empirical studies have noted the higher marginal propensity to consume food out of food stamps in the United States, compared to that out of cash income. Analyzing data from U.S. Food Stamp Program participants, we find evidence that this discrepancy may be driven primarily by the behavior of multiple-adult households. Single-adult households show no evidence of any discrepancy. Thus, our results suggest that food stamp and cash income (welfare or market) may have very different impact on the intra-household allocation process, and that this is reflected empirically in the cash-out puzzle.     

A Jump/Diffusion Consumption-Based Capital Asset Pricing Model and the Equity Premium Puzzle

This paper derives the equilibrium excess returns on risky assets in an exchange economy where the underlying exogenous uncertainty is a combination of a pure multidimensional jump process and a diffusion model. We derive closed-form solutions for the interest rate and the risk premiums on risky assets for a traditional class of separable utility indices. Our analysis demonstrates that when the underlying jumps of the aggregate consumption process are not negligible, then the traditional form of the consumption-based capital asset princing model need not hold and the asset risk premiums may be larger than predicted by the traditional CCAPM in continuous time, based on pure Itô diffusion processes. Our analysis suggests an explanation for the large estimates of the risk premiums reported in empirical tests of the single-beta CCAPM.     

Can Market Incompleteness Resolve Asset Pricing Puzzles?

Abstract:   This paper shows that the presence of persistent uninsurable risk concentrated in economic depressions has the potential to resolve two well‐known asset pricing puzzles. It is also shown that the presence of such risk in more normal economic expansions and recessions is likely to be much less relevant in determining equilibrium asset prices.     

Non-addictive Habit Formation and the Equity Premium Puzzle

I analyse a model in a simple representative-agent economy with one risky and one riskless asset, populated by habit forming consumer-investors. These consumer-investors exhibit non-addictive habit formation in the sense that the current consumption rate of the consumer-investors can fall below their past habit-forming consumption rate. I endogenise the real riskless rate of return in this representative-agent economy and find that the equity premium puzzle is resolved for plausible values of the coefficient of relative risk aversion, the discount rate, and the intensity of non-addictive habit formation. These values have been validated in previous empirical or survey-based studies. Non-addictive habit-formation studied here complements and extends current research on habit-forming preferences. Given a constant investment opportunity set, the real riskless rate in the economy increases with relative risk aversion of the consumer and decreases as the habit-formation intensity increases. Extensions with time-varying investment opportunity sets could explain the low risk-free rate and the relatively large variability of the market return over the variability of the risk-free rate through time.     

Age‐Dependent Increasing Risk Aversion and the Equity Premium Puzzle

We introduce a new preference structure—age‐dependent increasing risk aversion (IRA)—in a three‐period overlapping generations model with borrowing constraints, and examine the behavior of equity premium in this framework. We find that IRA preferences generate results that are more consistent with U.S. data for the equity premium, level of savings and portfolio shares, without assuming unreasonable levels of risk aversion. We find that the relative difference between the two risk aversions (how much more risk‐averse old agents are relative to the middle‐aged) matters more than the average risk aversion in the economy (how much more risk‐averse both cohorts are). Our findings are robust with respect to a number of model generalizations.     

A Model of Monetary Policy Shocks for Financial Crises and Normal Conditions

Deteriorating economic conditions in late 2008 led the Federal Reserve to lower the target federal funds rate to near zero, inject liquidity through novel facilities, and engage in large‐scale asset purchases. The combination of conventional and unconventional policy measures prevents using the effective federal funds rate to assess the effects of monetary policy beyond 2008. We employ a broad monetary aggregate to elicit the effects of monetary policy shocks both before and after 2008. Our estimates align well with major changes in the Fed's asset purchase programs and yield responses that are free from price, output, and liquidity puzzles that plague other approaches.     

Inflation targeting and the forward bias puzzle in emerging countries

Based on quarterly data on 31 emerging countries (among which 16 are inflation targeting countries) from 1990Q1 to 2014Q3, we obtain a strong support for the conjecture that the implementation of inflation targeting weakens the Fisherian relation between expected depreciation and the interest rate differential (uncovered interest parity condition) and thus is conducive to the appearance of the forward bias puzzle in emerging countries. We show that this reflects the performance of inflation targeting regimes in lowering the level and volatility of inflation. Our finding holds when controlling for country-specific effects, time-specific effects, global disinflation, exchange rate management, crises, and using different econometric techniques.