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on Utility Models and Prospect Theory |
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Issue of 2017‒12‒03
25 papers chosen by |
| By: | John Armstrong; Damiano Brigo |
| Abstract: | We consider market players with tail-risk-seeking behaviour as exemplified by the S-shaped utility introduced by Kahneman and Tversky. We argue that risk measures such as value at risk (VaR) and expected shortfall (ES) are ineffective in constraining such players. We show that, in many standard market models, product design aimed at utility maximization is not constrained at all by VaR or ES bounds: the maximized utility corresponding to the optimal payoff is the same with or without ES constraints. By contrast we show that, in reasonable markets, risk management constraints based on a second more conventional concave utility function can reduce the maximum S-shaped utility that can be achieved by the investor, even if the constraining utility function is only rather modestly concave. It follows that product designs leading to unbounded S-shaped utilities will lead to unbounded negative expected constraining utilities when measured with such conventional utility functions. To prove these latter results we solve a general problem of optimizing an investor expected utility under risk management constraints where both investor and risk manager have conventional concave utility functions, but the investor has limited liability. We illustrate our results throughout with the example of the Black--Scholes option market. These results are particularly important given the historical role of VaR and that ES was endorsed by the Basel committee in 2012--2013. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1711.00443&r=upt |
| By: | Phoebe Koundouri (Dept. of International and European Economic Studies, Athens University of Economics and Business); Nikitas Pittis (University of Piraeus, Greece); Panagiotis Samartzis; Nikolaos Englezos; Andreas Papandreou |
| Abstract: | This paper focuses on different types of ambiguity that affect climate change regulation. In particular, we analyze the effect of the interactions among three types of agents, namely, the decision maker (DM), the experts and the society, on the probabilistic properties of green-house gas (GHG) emissions and the formation of environmental policy, under two types of ambiguity: "deferential ambiguity" and "preferential ambiguity". Deferential ambiguity refers to the uncertainty that DM faces concerning to which expert's forecast (scenario) to defer. Preferential ambiguity stems from the potential inability of DM to correctly discern the society's preferences about the desired change of GHG emissions. This paper shows that the existence of deferential and preferential ambiguities have significant effects on GHG emissions regulation. |
| Keywords: | decision making on climate change, ambiguity, deep uncertainty, deferential ambiguity, preferential ambiguity, tail risks of environmental-policy variables. |
| JEL: | D8 D80 D81 D83 D |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1706&r=upt |
| By: | Bhamra, Harjoat Singh; Uppal, Raman |
| Abstract: | A common criticism of behavioral economics is that it has not shown that the psychological biases of individual investors lead to aggregate long-run effects on both asset prices and macroeconomic quantities. Our objective is to address this criticism by providing a simple example of a production economy where individual portfolio biases cancel when summed across investors, but still have an effect on aggregate quantities that does not vanish in the long-run. Specifically, we solve in closed form a model of a stochastic general-equilibrium production economy with a large number of heterogeneous firms and investors. Investors in our model are averse to ambiguity and so hold portfolios biased toward familiar assets. We specify this bias to be unsystematic so it cancels out when aggregated across investors. However, because of holding underdiversified portfolios, investors bear more risk than necessary, which distorts the consumption of all investors in the same direction. Hence, distortions in consumption do not cancel out in the aggregate and therefore increase the price of risk and distort aggregate investment and growth. The increased risk from holding biased portfolios, which increases the demand for the risk-free asset, leading to a higher equity risk premium and a lower risk-free rate that match the values observed empirically. Furthermore, all investors survive in the long-run, and so the effects of their biases never vanish. Our analysis illustrates that idiosyncratic behavioral biases can have long-run distortionary effects on both financial markets and the macroeconomy. |
| Keywords: | aggregate growth; ambiguity aversion; behavioral finance; investment; underdiversification |
| JEL: | E44 G02 G11 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12415&r=upt |
| By: | González Dávila, Osiel; Koundouri, Phoebe; Pantelidis, Theologos; Papandreou, Andreas |
| Abstract: | In this paper we develop a full-preference ranking Choice Experiment (CE) designed to investigate how respondents evaluate a set of proposed improvements towards sustainable river basin management, as per the prescriptions of the European Union-Water Framework Directive (2000). The CE is applied in the Asopos River Basin (ARB) in Greece. Our interest is to test whether residency in the river basin, or otherwise, affects the preferences of the relevant agents. We first estimate a rank-ordered logistic regression based on a full set of choices in order to calculate the willingness to pay (WTP) of respondents for each one of the three attributes considered in the CE (i.e., environmental conditions, impact on the local economy and changes in the potential uses of water). The model is initially estimated for the full sample and then re-estimated twice for two sub-samples: the first one only includes the residents of Athens and the second only includes the residents of Asopos. Afterwards, we examine the effect of various demographic and socio-economic factors (such as income, gender, age, employment and education) on the estimates of our model in order to reveal any differences among respondents with different characteristics, mainly focusing on whether they reside or have personal experience of the RB under valuation. Thus, our analysis simultaneously provides a robustness check on previous findings in the literature and additional information about how various demographic and socio-economic characteristics affect the evaluation of the selected attributes. |
| Keywords: | choice experiment; full-preference ranking; Asopos River Basin; water quality and quantity; Water Framework Directive; willingness to pay |
| JEL: | Q25 Q51 Q53 |
| Date: | 2017–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:68893&r=upt |
| By: | Phoebe Koundouri; Nikitas Pittis (University of Piraeus, Greece); Panagiotis Samartzis; Nikolaos Englezos; Andreas Papandreou |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1707&r=upt |
| By: | Daher, Wassim; Aydilek, Harun; Saleeby, Elias G. |
| Abstract: | This paper investigates the effect of different risk attitudes on the financial decisions of two insiders trading in the stock market. We consider a static version of the Kyle (1985) model with two insiders. Insider 1 is risk neutral while insider 2 is risk averse with negative exponential utility. First, we prove the existence of a unique linear equilibrium. Second, we obtain somewhat surprising results on how the risk attitudes affect the market liquidity, the price efficiency, when we carry out a comparative static analysis with respect to Tighe (1989) and Holden and Subrahmanyam(1994) models. |
| Keywords: | Insider trading, Risk neutrality, Risk aversion, Exponential Utility, Market structure, Kyle model |
| JEL: | D8 D82 G1 G14 |
| Date: | 2017–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81733&r=upt |
| By: | Calisto Guambe; Rodwell Kufakunesu |
| Abstract: | We discuss an optimal investment, consumption and insurance problem of a wage earner under inflation. Assume a wage earner investing in a real money account and three asset prices, namely: a real zero coupon bond, the inflation-linked real money account and a risky share described by jump-diffusion processes. Using the theory of quadratic-exponential backward stochastic differential equation (BSDE) with jumps approach, we derive the optimal strategy for the two typical utilities (exponential and power) and the value function is characterized as a solution of BSDE with jumps. Finally, we derive the explicit solutions for the optimal investment in both cases of exponential and power utility functions for a diffusion case. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1711.01760&r=upt |
| By: | Jingtang Ma; Wenyuan Li; Harry Zheng |
| Abstract: | The aim of this paper is to study the fast computation of the lower and upper bounds on the value function for utility maximization under the Heston stochastic volatility model with general utility functions. It is well known there is a closed form solution of the HJB equation for power utility due to its homothetic property. It is not possible to get closed form solution for general utilities and there is little literature on the numerical scheme to solve the HJB equation for the Heston model. In this paper we propose an efficient dual control Monte Carlo method for computing tight lower and upper bounds of the value function. We identify a particular form of the dual control which leads to the closed form upper bound for a class of utility functions, including power, non-HARA and Yarri utilities. Finally, we perform some numerical tests to see the efficiency, accuracy, and robustness of the method. The numerical results support strongly our proposed scheme. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1710.10487&r=upt |
| By: | Qizhu Liang; Jie Xiong |
| Abstract: | Within the framework of Kahneman and Tversky's cumulative prospective theory, this paper considers a continuous-time behavioral portfolio selection model, which includes both running and terminal terms in the objective functional. Despite the existence of S-shaped utility functions and probability distortions, a necessary condition for optimality is derived by stochastic maximum principle. Finally, the results are applied to various cases. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1710.11432&r=upt |
| By: | Arash Fahim; Wan-Yu Tsai |
| Abstract: | This paper concerns the numerical solution of a fully nonlinear parabolic double obstacle problem arising from a finite portfolio selection with proportional transaction costs. We consider the optimal allocation of wealth among multiple stocks and a bank account in order to maximize the finite horizon discounted utility of consumption. The problem is mainly governed by a time-dependent Hamilton-Jacobi-Bellman equation with gradient constraints. We propose a numerical method which is composed of Monte Carlo simulation to take advantage of the high-dimensional properties and finite difference method to approximate the gradients of the value function. Numerical results illustrate behaviors of the optimal trading strategies and also satisfy all qualitative properties proved in Dai et al. (2009) and Chen and Dai (2013). |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1711.01017&r=upt |
| By: | Garriga, Carlos (Federal Reserve Bank of St. Louis) |
| Abstract: | In this paper, we explore the proposition that the optimal capital income tax is zero using an overlapping generations model. We prove that for a large class of preferences, the optimal capital income tax along the transition path and in steady state is non-zero. For a version of the model calibrated to the US economy, we find that the model could justify the observed rates of capital income taxation for an empirically reasonable intertemporal utility function and a robust demographic structure. |
| Keywords: | Optimal taxation; uniform commodity taxation |
| JEL: | E62 H21 |
| Date: | 2017–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-032&r=upt |
| By: | Fosgerau, Mogens; Jiang, Gege |
| Abstract: | This paper sets up a rational inattention model for the choice of departure time for a traveler facing random travel time. The traveler chooses how much information to acquire about the travel time outcome before choosing departure time. This reduces the cost of travel time variability compared to models in which the information is exogenously fixed. |
| Keywords: | rational inattention; random travel time variability; value of reliability; discrete choice |
| JEL: | D1 D8 R4 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82248&r=upt |
| By: | Heufer, Jan (Erasmus School of Economics and Tinbergen Institute); Hjertstrand, Per (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We propose a method to recover homothetic preferences from choice data with minor optimization or measurement errors. Our method allows for a more detailed graphical analysis to reveal subjects' preferences and to choose appropriate functional forms for parametric analysis. It can also be used to extend applications of the money metric function, such as parametric recoverability as introduced by Halevy et al. (2017). It can also improve nonparametric comparison of preferences as suggested by Heufer (2014). |
| Keywords: | Graphical Analysis; Homotheticity; Money Metric Utility; Recoverability; Revealed Preference |
| JEL: | C14 C91 D11 D12 |
| Date: | 2017–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1187&r=upt |
| By: | Gimenez-Nadal, Jose Ignacio; Molina, Jose Alberto |
| Abstract: | In the context of the maximizing behaviour assumption (Becker, 1976), an individual usually maximizes the utility function, minimizes the cost or, finally, can also maximizes the profit function in consumption, with each of these three optimization problems providing a type of demand function: the Marshallian, the Hicksian, and the Frischian. In all three cases, an important concept for both theoretical and empirical reasons is the Substitution Effect (SE), with this measuring the substitution phenomenon in the demanded quantity in function of the price change. In this context, our short paper offers certain alternative theoretical expressions of the Substitution Effect, focusing on the Profit Function in Consumption, thus introducing the inter-temporal context with perfect information. |
| Keywords: | Demand analysis; Substitution Effect; Profit Function in Consumption; Marshallian, Hicksian and Frischian demand functions |
| JEL: | D11 |
| Date: | 2017–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82249&r=upt |
| By: | Robert A. Pollak |
| Abstract: | This paper investigates marriage market equilibrium under the assumption that Bargaining In Marriage (BIM) determines allocation within marriage. Prospective spouses, when they meet in the marriage market, are assumed to foresee the outcome of BIM and rank prospective spouses on the basis of the utilities they foresee emerging from BIM. Under these assumptions, the marriage market is the first stage of a multi-stage game – in the simplest case, a two-stage game – that must be solved by backwards induction. The marriage market determines both who marries and, among those who marry, who marries whom. Bargaining in the second and any subsequent stages determines allocation within each marriage. When BIM determines allocation within marriage, the appropriate framework for analyzing marriage market equilibrium is the Gale-Shapley matching model. In contrast, the standard model of marriage market equilibrium assumes that prospective spouses make Binding Agreements in the Marriage Market (BAMM) that determine allocation within marriage. If we assume BAMM and transferable utility, then the appropriate framework for analyzing marriage market equilibrium is the Koopmans-Beckmann-Shapley-Shubik assignment model. BIM and BAMM have different implications not only for allocation within marriage but also for who marries, who marries whom, the number of marriages, and the Pareto efficiency of marriage market equilibrium. |
| JEL: | D1 J12 K36 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24000&r=upt |
| By: | Klaus Neusser |
| Abstract: | While rational expectations models with time{varying (random) coefficients have gained some esteem, the understanding of their dy- namic properties is still in its infancy. The paper adapts results from the theory of random dynamical systems to solve and analyze the stability of rational expectations models with time{varying (random) coefficients. This theory develops a \linear algebra" in terms of Lya- punov exponents defined as the asymptotic growth rates of trajecto- ries. They replace the eigenvalue analysis used in constant coefficient models and allow the construction of solutions in the spirit of Blan- chard and Kahn (1980). The usefulness of these methods and their numerical implementation is illustrated using a canonical New Key- nesian model with a time{varying policy rule. |
| Keywords: | time-varying rational expectations models; random dynamical systems; Lyapunov exponents; multiplicative ergodic theorem |
| JEL: | C02 C61 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1701&r=upt |
| By: | Branger, Nicole; Rodrigues, Paulo; Schlag, Christian |
| Abstract: | We propose a long-run risk model with stochastic volatility, a time-varying mean reversion level of volatility, and jumps in the state variables. The special feature of our model is that the jump intensity is not affine in the conditional variance but driven by a separate process. We show that this separation of jump risk from volatility risk is needed to match the empirically weak link between the level and the slope of the implied volatility smile for S&P 500 options. |
| Keywords: | asset pricing,Epstein-Zin preferences,jump risk,stochastic volatility,level and slope of implied volatility smile |
| JEL: | G12 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:186&r=upt |
| By: | Berg Cui (Indiana University); Yoosoon Chang (Indiana University); Joon Park (Indiana University) |
| Abstract: | We construct Consumption CAPM pricing kernel under heterogeneous Epstein- Zin-Weil (EZW) preferences setup. We show except under some strict assumptions, aggregation does not hold and individual level information is necessary to price assets. Assuming complete market, we estimate preferences parameters for heterogeneous agents using households level consumption and wealth data from Panel Study of Income Dynamics (PSID) database. Contrast to the literature, we get relatively larger Elasticity of Inter-temporal Substitution (EIS) and much smaller Relative Risk Aversion (RRA) parameters. We then calculate excess return for risky assets using Consumption-CAPM pricing kernel with our estimated preferences and individual consumption and wealth data. We show that our heterogeneous perferences pricing kernel improves the representative agent pricing kernel at three fronts, namely idiosyncratic risk factors, heterogeneous factor premia and idiosyncratic characteristics dependent aggregation weights. Each front improves the explanatory power to real world risk premium and cross sectional differences in stock excess returns. Lastly, we demonstrate another advantage of heterogeneous preferences model in terms of accounting for market participation heterogeneity. Including market participants only further improves model's explanatory power on market risk premium dynamics. |
| Keywords: | Consumption CAPM, Epstein-Zin-Weil, heterogeneous preferences, heterogeneous market participation |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2017013&r=upt |
| By: | Huck, Steffen; Szech, Nora; Wenner, Lukas M. |
| Abstract: | Recent behavioral models argue in favor of avoidance of instrumental information. We explore the role of information avoidance in a real-effort setting. Our experiment offers three main results. First, we confirm that preferences for avoidance of instrumental information exist, studying information structures on performance pay. Second, information avoiders outperform information receivers. This result holds independently of effects of self-selection. Third, the findings support theories on information avoidance that favor an optimistic belief design rather than theories that rationalize such behavior as a way to mitigate selfcontrol problems. This suggests that coarse information structures lead agents to distort their beliefs away from the objective prior. |
| Keywords: | optimal expectations,belief design,performance,real effort task,coarse incentive structures,workplace incentives |
| JEL: | D83 D84 J31 M52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2015304r2&r=upt |
| By: | Johann K. Brunner; Susanne Pech |
| Abstract: | We study the optimal tax system in a dynamic model where di¤erences in wages induce di¤erences in inheritances, and the transition from parent ability to child ability is described by a Markov chain. In accordance with empirical evidence, we assume that in any generation more able individuals are likely to have a more able parent, which implies that in the steady state they also tend to receive larger inheritances than less able individuals. We show that the Atkinson-Stiglitz result on the redundancy of indirect taxes does not hold in this framework. In particular, given an optimal income tax, a bequest tax as well as a consumption tax are potential instruments for additional redistribution. For the bequest tax the sign of the overall welfare e¤ect depends on the reaction of bequests and on inequality aversion, while for the consumption tax the sign is always positive because the distorting e¤ect is outweighed by the induced increase in wealth accumulation. |
| Keywords: | Optimal taxation, estate tax, consumption tax, wealth transmission. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2017_17&r=upt |
| By: | Brown, Tashauna Andrene; Panibratov, Andrei Yu. |
| Abstract: | The decision making process and execution of foreign divestment has been an increasing phenomenon which has been noted by researchers over the years as a very terrifying decision, however, a holistic framework has yet to be developed to address this issue. The theory of Bounded rationality and real option theory have been independently analyzed and used to explain the decision to divest. We examine the usage of both theories in unison to determine divestment decision and propose a theoretical framework. In this paper the author seeks to give insight based on organization theories which can be used a basis to build a model of FD. |
| Keywords: | Foreign Divestment (FD), bounded rationality, real options, decision-making, |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:sps:cpaper:8608&r=upt |
| By: | Lea Skræp Svenningsen (Department of Food and Resource Economics, University of Copenhagen) |
| Abstract: | This study examines whether people have distributional preferences for the impacts of climate policy when making donations towards such policies. In an online choice experiment, using a real donation mechanism, a representative sample of 95 members of the Danish public are provided 27€ and asked to make 16 donation choices among different climate policy options. The climate policies are described in terms of two main outcome variables, including future effects on income in 2100 and present co-benefits from mitigation action. Both outcomes are described for three specific regions of the world, Western Europe, Southeast Asia and Sub-Saharan Africa. For each participant, one policy choice was drawn at random to be realised and the total amount donated by participants was used to purchase and withdraw CO2 quotas and credits in the European Emission Trading Scheme and as a donation to the UN Adaptation Fund. A random parameter logit model shows that distributional concerns matter for people when they donate to climate policy and that elements of both inequity aversion and general altruism influence the choice of climate policy. The results underscore the importance of considering preferences for distributional outcomes when designing climate policy. |
| Keywords: | choice experiment, climate change, inequity aversion, altruism, random parameters logit, intergenerational, distributional social preferences |
| JEL: | D30 D91 Q51 Q54 Q58 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:foi:wpaper:2017_11&r=upt |
| By: | Michele Tettamanzi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore) |
| Abstract: | In this paper we develop a Hybrid Macroeconomic ABM. The economy is populated with firms heterogeneous in term of financial fragility, measured via the Equity Ratio. Firms are maximizing profit by choosing capital, which can not be raised on the stock market. Therefore they have to rely on a loan charged by the External Finance Pre- mium that is decreasing in the Equity Ratio; profits are retained as net worth. The economy is populated also with consumers, whom optimize their utility holding individual non-rational ex- pectations; thus they are heterogeneous in their expectations. The expectations formation process is the Heuristic Switching Model: given a fixed set of heuristics, agents choose the one which has performed the best in the past; this model has been extrapolated and validated in several Learn to Forecast Experiments. Thanks to the Variant Representative Agent approach, there can be built bottom-up a macro- economic system which encapsulates the heterogeneity by considering relevant moments rather than the whole the distributions of the heterogeneous characteristics of the agents. The emergent macro-economic system will be described by an optimized IS, a Taylor Rule and a Phillips Curve; thus the model tries to bridge NK-DSGE with ABM. The proposed approach result in a macro-economic system with a reduced dimensionality, thus it is analytical tractable and it resumes macroeconomic thinking: the ABM is used to link periods and keep track of the individual distribution, while the macro-economic model is a frame that pictures the value of the fundamentals given the distributions. The model is put at work through a fiscal shock and it shows it capabilities in disentangling the transmission of a shock in its direct and indirect effect: the former are the ones directly caused by the shocked variable, the latter instead derive from the evolution of the distributions. Moreover the model is also able to distinguish the contributions to the shock of the Representative Agent Component opposed to the Heterogeneous Agent Component. . |
| Keywords: | Heterogeneity, Financial fragility, Bounded Rationality, Heterogeneous Expectations, Aggregation, Business cycles. |
| JEL: | E32 E44 D84 D90 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def062&r=upt |
| By: | Laurens Cherchye; Sam Cosaert; Bram De Rock; Pieter Jan Kerstens; Frederic Vermeulen |
| Abstract: | We propose novel tools for the analysis of individual welfare on the basis of aggregate household demand behavior. The method assumes a collective model of household consumption with the public and private nature of goods specified by the empirical analyst. A main distinguishing feature of our method is that it builds on a revealed preference characterization of the collective model that is intrinsically nonparametric. We show how to identify individual money metric welfare indices from observed household demand, along with the intrahousehold sharing rule and the individuals' willingness-to-pay for public consumption (i.e. Lindahl prices). The method is easy to use in practice and yields informative empirical results, which we demonstrate through a simulation analysis and an empirical application to labor supply data. |
| Keywords: | individual welfare; collective model; revealed preferences; sharing rule; money metric welfare index; identification; labor supply |
| JEL: | D11 D12 D13 C14 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/261073&r=upt |
| By: | Buss, Adrian; Uppal, Raman |
| Abstract: | We study the effects of financial innovation on the dynamics of asset prices. We show that when some investors are less well informed about the new asset but rationally learn about it, many "intuitive'' results are reversed: financial innovation increases the volatility of investors' portfolios along with the return volatility and risk premium for the new asset, which decline to their pre-innovation levels only slowly. Moreover, illiquidity of the new asset causes shocks to the new asset to spill over to the traditional asset, increasing their return correlation and giving rise to a liquidity premium for the new asset. |
| Keywords: | differences in beliefs; parameter uncertainty; rational learning; recursive utility; spillover effects |
| JEL: | G11 G12 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12416&r=upt |