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Risk Robustness And Knightian Uncertainty In Continuous Time Heterogenous Agents Financial Equilibria
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Book Synopsis Risk, Robustness and Knightian Uncertainty in Continuous-Time, Heterogenous Agents, Financial Equilibria by : Paolo Vanini
Download or read book Risk, Robustness and Knightian Uncertainty in Continuous-Time, Heterogenous Agents, Financial Equilibria written by Paolo Vanini and published by . This book was released on 2002 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze and compare analytically continuous-time financial equilibria where heterogeneous risk averse investors care about model misspecification through some preference for robustness and in the presence of a stochastic opportunity set. This incorporates a concern for model misspecification into equilibrium asset prices. Since no exact equilibrium computations are possible in this model setting, perturbation theory is used to provide first order asymptotics for the implied equilibria. We find that to first order robustness enhances eective risk aversion while keeping constant the preference for intertemporal substitution. Therefore, equilibrium consumption, equilibrium capital stock dynamics (in production economies) and equilibrium stock price processes (in exchange economies) are not directly modified by a preference for robustness. By contrast, robustness aects directly optimal portfolios, causing lower equilibrium interest rates - and thereby enhanced risk premia - when the speculative investment motive dominates the intertem-poral hedging demand. Finally, at variance with other robustness specifications, definitions of robustness that mimic Knightian uncertainty produce state dependent eective risk aversions that generate first order risk aversion eects on optimal portfolios, equilibrium interest rates and equity premia. This yields functional forms for some key equilibrium variables like equity premia which are structurally different from those implied by standard risk aversion or other robustness definitions, which reflect all second order risk aversion. Moreover, under Knightian uncertainty the structure of an equilibrium depends strongly on the completeness of the underlying economy. For instance, within complete production economies we find that Knightian uncertainty can generate an endogenous stock market participation, a feature that cannot be obtained by the other robustness definitions. The richness of the equilibrium eects generated in our heterogenous economies suggests that definitions of robustness which mimic Knightian uncertainty can generate the largest variety of robust economic behaviours in the presence of model uncertainty.
Book Synopsis Risk, robustness and knightian uncertainty in continuous-time, heterogenous agents, financial equilibria by :
Download or read book Risk, robustness and knightian uncertainty in continuous-time, heterogenous agents, financial equilibria written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze and compare analytically continuous-time financial equilibria where heterogeneous risk averse investors care about model misspecification through some preference for robustness and in the presence of a stochastic opportunity set. This incorporates a concern for model misspecification into equilibrium asset prices. Since no exact equilibrium computations are possible in this model setting, perturbation theory is used to provide first order asymptotics for the implied equilibria. We find that to first order robustness enhances effective risk aversion while keeping constant the preference for intertemporal substitution. Therefore, equilibrium consumption, equilibrium capital stock dynamics (in production economies) and equilibrium stock price processes (in exchange economies) are not directly modified by a preference for robustness. By contrast, robustness affects directly optimal portfolios, causing lower equilibrium interest rates - and thereby enhanced risk premia - when the speculative investment motive dominates the intertemporal hedging demand. Finally, at variance with other robustness specifications, definitions of robustness that mimic Knightian uncertainty produce state dependent effective risk aversions that generate first order risk aversion effects on optimal portfolios, equilibrium interest rates and equity premia. This yields functional forms for some key equilibrium variables like equity premia which are structurally different from those implied by standard risk aversion or other robustness definitions, which reflect all second order risk aversion. Moreover, under Knightian uncertainty the structure of an equilibrium depends strongly on the completeness of the underlying economy. For instance, within complete production economies we find that Knightian uncertainty can generate an endogenous stock market participation, a feature that cannot be obtained by the other robustness definitions. The richness of the equilibrium effects generated in ou.
Book Synopsis Robustness and Ambiguity Aversion in General Equilibrium by : Fabio Trojani
Download or read book Robustness and Ambiguity Aversion in General Equilibrium written by Fabio Trojani and published by . This book was released on 2004 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the empirical predictions arising from settings of ambiguity aversion in intertemporal heterogenous agents economies. We study equilibria for two tractable wealth-homothetic settings of ambiguity aversion in continuous time. Such settings are motivated by a different robust control optimization problem. We show that ambiguity aversion affects optimal portfolio exposures in a way that is similar to an increase in risk aversion. A distinct property of the second of our settings of ambiguity aversion is that such increase is state-dependent and highly pronounced at moderate portfolio exposures. This feature causes quite prudent levels of equity market participation over a nontrivial set of states of the economy. In general equilibrium, ambiguity aversion tends to induce a higher equilibrium equity premium and lower interest rates. A distinct feature of the second of our settings of ambiguity aversion is that the equity premium part due to ambiguity aversion dominates when the exogenous random factors in the economy have low volatility. Thus, such setting can account for some distinct empirical predictions - like a limited equity market participation and ambiguity equity premia that dominate equity premia for small equity volatilities - which are unavailable under the first of our settings of ambiguity aversion.
Book Synopsis Robustness and Ambiguity Aversion in General Equilibrium by :
Download or read book Robustness and Ambiguity Aversion in General Equilibrium written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the empirical predictions arising from settings of ambiguity aversion in intertemporal heterogenous agents economies. We study equilibria for two tractable wealth-homothetic settings of ambiguity aversion in continuous time. Such settings are motivated by a different robust control optimization problem. We show that ambiguity aversion affects optimal portfolio exposures in a way that is similar to an increase in risk aversion. A distinct property of the second of our settings of ambiguity aversion is that such increase is state-dependent and highly pronounced at moderate portfolio exposures. This feature causes quite prudent levels of equity market participation over a nontrivial set of states of the economy. In general equilibrium, ambiguity aversion tends to induce a higher equilibrium equity premium and lower interest rates. A distinct feature of the second of our settings of ambiguity aversion is that the equity premium part due to ambiguity aversion dominates when the exogenous random factors in the economy have low volatility. Thus, such setting can account for some distinct empirical predictions - like a limited equity market participation and ambiguity equity premia that dominate equity premia for small equity volatilities - which are unavailable under the first of our settings of ambiguity aversion.
Download or read book Robustness written by Lars Peter Hansen and published by Princeton University Press. This book was released on 2016-06-28 with total page 453 pages. Available in PDF, EPUB and Kindle. Book excerpt: The standard theory of decision making under uncertainty advises the decision maker to form a statistical model linking outcomes to decisions and then to choose the optimal distribution of outcomes. This assumes that the decision maker trusts the model completely. But what should a decision maker do if the model cannot be trusted? Lars Hansen and Thomas Sargent, two leading macroeconomists, push the field forward as they set about answering this question. They adapt robust control techniques and apply them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics. Technical, rigorous, and self-contained, this book will be useful for macroeconomists who seek to improve the robustness of decision-making processes.
Book Synopsis Entrepreneurial Action by : Andrew C. Corbett
Download or read book Entrepreneurial Action written by Andrew C. Corbett and published by Emerald Group Publishing. This book was released on 2012-07-17 with total page 327 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volume 14 addresses the central issue of entrepreneurial action: while many factors are important to the phenomenon of entrepreneurship, entrepreneurship does not happen until someone takes action!
Book Synopsis Contemporary Post Keynesian Analysis by : L. Randall Wray
Download or read book Contemporary Post Keynesian Analysis written by L. Randall Wray and published by Edward Elgar Publishing. This book was released on 2004 with total page 378 pages. Available in PDF, EPUB and Kindle. Book excerpt: Original articles by leading scholars of post Keynesian economics make up this authoritative collection. Current topics of the greatest interest are covered, such as: perspectives on current economic policy; post Keynesian approaches to monetary theory and policy; economic development, growth and inflation; Kaleckian perspectives on distribution; economic methodology; and history of heterodox economic theory. The contributors explore a variety of prevailing issues including: wage bargaining and monetary policy in the EMU; the meaning of money in the internet age; stability conditions for small open economies; and economic policies of sustainable development in countries transitioning to a market economy. Other enduring matters are examined through the lens of economic theorists - Kaleckian dynamics and evolutionary life cycles; a comparison between Keynes's and Hayek's economic theories; and an analysis of the power of the firm based on the work of Joan Robinson, to name a few. Students and scholars of post Keynesian economics and those with an interest in other heterodox schools of thought will find this enlightening volume a valuable addition to their reading.
Book Synopsis The Economics of Exhaustible Resources by : G. M. Heal
Download or read book The Economics of Exhaustible Resources written by G. M. Heal and published by . This book was released on 1993 with total page 706 pages. Available in PDF, EPUB and Kindle. Book excerpt: These 27 articles on the economics of exhaustible resources date from 1931 to 1991.
Book Synopsis Rational Expectations Econometrics by : Lars Peter Hansen
Download or read book Rational Expectations Econometrics written by Lars Peter Hansen and published by CRC Press. This book was released on 2019-09-05 with total page 305 pages. Available in PDF, EPUB and Kindle. Book excerpt: At the core of the rational expectations revolution is the insight that economic policy does not operate independently of economic agents' knowledge of that policy and their expectations of the effects of that policy. This means that there are very complicated feedback relationships existing between policy and the behaviour of economic agents, and these relationships pose very difficult problems in econometrics when one tries to exploit the rational expectations insight in formal economic modelling. This volume consists of work by two rational expectations pioneers dealing with the "nuts and bolts" problems of modelling the complications introduced by rational expectations. Each paper deals with aspects of the problem of making inferences about parameters of a dynamic economic model on the basis of time series observations. Each exploits restrictions on an econometric model imposed by the hypothesis that agents within the model have rational expectations.
Book Synopsis Handbook of the Economics of Finance by : G. Constantinides
Download or read book Handbook of the Economics of Finance written by G. Constantinides and published by Elsevier. This book was released on 2003-11-04 with total page 698 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
Book Synopsis Uncertainty and the Employment Dynamics of Small and Large Businesses by : Vivek Ghosal
Download or read book Uncertainty and the Employment Dynamics of Small and Large Businesses written by Vivek Ghosal and published by International Monetary Fund. This book was released on 2015-01-14 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of uncertainty on employment dynamics. Alternative measures of uncertainty are constructed based on the survey of professional forecasters, and regressionbased forecasting models for GDP growth, inflation, S&P500 stock price index, and fuel prices. Our results indicate that greater uncertainty has a negative impact on growth of employment, and the effects are primarily felt by the relatively smaller businesses; the impact on large businesses are generally non-existent or weaker. Our results suggest that to truly understand the effects of uncertainty on employment dynamics, we need to focus on the relatively smaller and entrepreneurial businesses. We discuss implications for the framing of economic policy.
Book Synopsis NBER Macroeconomics Annual 2004 by : Mark Gertler
Download or read book NBER Macroeconomics Annual 2004 written by Mark Gertler and published by Mit Press. This book was released on 2005 with total page 489 pages. Available in PDF, EPUB and Kindle. Book excerpt: The NBER Macroeconomics Annual presents pioneering work in macroeconomics by leading academic researchers addressed to a broad audience of public policymakers as well as to the academic community. Each paper is followed by comments and discussion to give a more complete context for the views expressed. The 2004 edition features a range of papers aimed at providing coherent and informative answers to such important questions as the effect of federal government debt on interest rates; the stochastic dimension of the American economy; the role of technology as a source of economic fluctuations; and the interaction of capital flows, fiscal policy, and monetary policies in developing countries, emerging markets, and OECD countries.
Book Synopsis Post Walrasian Macroeconomics by : David Colander
Download or read book Post Walrasian Macroeconomics written by David Colander and published by Cambridge University Press. This book was released on 2006-07-17 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macroeconomics is evolving in an almost dialectic fashion. The latest evolution is the development of a new synthesis that combines insights of new classical, new Keynesian and real business cycle traditions into a dynamic, stochastic general equilibrium (DSGE) model that serves as a foundation for thinking about macro policy. That new synthesis has opened up the door to a new antithesis, which is being driven by advances in computing power and analytic techniques. This new synthesis is coalescing around developments in complexity theory, automated general to specific econometric modeling, agent-based models, and non-linear and statistical dynamical models. This book thus provides the reader with an introduction to what might be called a Post Walrasian research program that is developing as the antithesis of the Walrasian DSGE synthesis.
Book Synopsis Imperfect Knowledge Economics by : Roman Frydman
Download or read book Imperfect Knowledge Economics written by Roman Frydman and published by Princeton University Press. This book was released on 2023-09-26 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt: Posing a major challenge to economic orthodoxy, Imperfect Knowledge Economics asserts that exact models of purposeful human behavior are beyond the reach of economic analysis. Roman Frydman and Michael Goldberg argue that the longstanding empirical failures of conventional economic models stem from their futile efforts to make exact predictions about the consequences of rational, self-interested behavior. Such predictions, based on mechanistic models of human behavior, disregard the importance of individual creativity and unforeseeable sociopolitical change. Scientific though these explanations may appear, they usually fail to predict how markets behave. And, the authors contend, recent behavioral models of the market are no less mechanistic than their conventional counterparts: they aim to generate exact predictions of "irrational" human behavior. Frydman and Goldberg offer a long-overdue response to the shortcomings of conventional economic models. Drawing attention to the inherent limits of economists' knowledge, they introduce a new approach to economic analysis: Imperfect Knowledge Economics (IKE). IKE rejects exact quantitative predictions of individual decisions and market outcomes in favor of mathematical models that generate only qualitative predictions of economic change. Using the foreign exchange market as a testing ground for IKE, this book sheds new light on exchange-rate and risk-premium movements, which have confounded conventional models for decades. Offering a fresh way to think about markets and representing a potential turning point in economics, Imperfect Knowledge Economics will be essential reading for economists, policymakers, and professional investors.
Book Synopsis An Evolutionary Theory of Economic Change by : Richard R. Nelson
Download or read book An Evolutionary Theory of Economic Change written by Richard R. Nelson and published by Harvard University Press. This book was released on 1985-10-15 with total page 456 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book contains the most sustained and serious attack on mainstream, neoclassical economics in more than forty years. Nelson and Winter focus their critique on the basic question of how firms and industries change overtime. They marshal significant objections to the fundamental neoclassical assumptions of profit maximization and market equilibrium, which they find ineffective in the analysis of technological innovation and the dynamics of competition among firms. To replace these assumptions, they borrow from biology the concept of natural selection to construct a precise and detailed evolutionary theory of business behavior. They grant that films are motivated by profit and engage in search for ways of improving profits, but they do not consider them to be profit maximizing. Likewise, they emphasize the tendency for the more profitable firms to drive the less profitable ones out of business, but they do not focus their analysis on hypothetical states of industry equilibrium. The results of their new paradigm and analytical framework are impressive. Not only have they been able to develop more coherent and powerful models of competitive firm dynamics under conditions of growth and technological change, but their approach is compatible with findings in psychology and other social sciences. Finally, their work has important implications for welfare economics and for government policy toward industry.
Book Synopsis Heterogeneity and Persistence in Returns to Wealth by : Andreas Fagereng
Download or read book Heterogeneity and Persistence in Returns to Wealth written by Andreas Fagereng and published by International Monetary Fund. This book was released on 2018-07-27 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
Book Synopsis Protean Power by : Peter J. Katzenstein
Download or read book Protean Power written by Peter J. Katzenstein and published by Cambridge University Press. This book was released on 2018-01-18 with total page 383 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mainstream international relations continues to assume that the world is governed by calculable risk based on estimates of power, despite repeatedly being surprised by unexpected change. This ground breaking work departs from existing definitions of power that focus on the actors' evolving ability to exercise control in situations of calculable risk. It introduces the concept of 'protean power', which focuses on the actors' agility as they adapt to situations of uncertainty. Protean Power uses twelve real world case studies to examine how the dynamics of protean and control power can be tracked in the relations among different state and non-state actors, operating in diverse sites, stretching from local to global, in both times of relative normalcy and moments of crisis. Katzenstein and Seybert argue for a new approach to international relations, where the inclusion of protean power in our analytical models helps in accounting for unforeseen changes in world politics.
