Stochastic portfolio theory and stock market equilibrium pdf

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EconPapers: Stochastic Portfolio Theory and Stock Market Equilibrium

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Our alumni exemplify excellence in management. They represent the advantage of the Kellogg experience. FINANCE Associate Professor of Finance. Professor Papanikolaou joined the faculty at the Kellogg School of Management inafter completing his Ph.

His research interests include theoretical and empirical asset pricing, macroeconomics and contract theory. Professor Papanikolaou is currently working on the effects of technological shocks on the cross-section of risk-premia and firms' investment decisions. Professor Papanikolaou is a Zell Center Faculty Fellow. Trained in finance and economics, he also holds a B.

This course aims at developing key concepts in investment theory from the perspective of a portfolio manager rather than an individual investor. The goal of this class is to provide students with a structure for thinking about investment theory and show how to address practical investment problems in a systematic manner. Instead of focusing on pure theoretical models, the emphasis is given on the empirical facts observed in asset prices in worldwide capital markets, understanding whether they manifest new dimension of systematic risk, and how to design smart portfolios to take advantage of multiple sources of systematic risk.

Other Topics Time Permitting: Students interested in this course are expected to have sound knowledge of Statistics and Regression Analysis. This is a quantitative course in which we discuss many cases, but case studies will require ability to do statistical analysis similar to what might be applied in practice.

The course develops an applied analytical framework of financial investments. Kellogg School of Management Northwestern University Campus DriveEvanstonIL Email Directions. Collaborative and world changing Kellogg brings bold ideas to the table, and we gather the people who can affect change. Discover options that align with your goals Whichever program you choose, you will enjoy an unparalleled education, taught by our exceptional faculty and grounded in the unique Kellogg culture.

Stay ahead of the stochastic portfolio theory and stock market equilibrium pdf Kellogg offers courses, such as Advanced Management Programsto help professionals improve leadership, strategic and tactical skills and develop cross-functional understanding of organizations.

A network for now and for life From how much money does a band make on warped tour one, Kellogg students become part of a global network of 60, entrepreneurs, innovators and experts across every conceivable industry and endeavor.

Overview Vita Research Teaching Professor Papanikolaou joined the faculty at the Kellogg School of Management inafter completing his Ph. The Risk of Risk Avoidance Economist Intelligence Unit: Predicting investment shockwaves Economist Intelligence Unit: Predicting investment shock waves Morningstar: Valuing Possibilities See all Kellogg in the Media Recent Kellogg News Society through business Jan Eberly named co-editor of leading policy publication Investing in people Legitimate work from home jobs indianapolis all Kellogg News.

Growth Opportunities and Technology Shocks. American Economic Review, Papers and Proceedings. Investment Shocks forex trader tver Asset Prices. Journal of Political Economy. I explore the implications for asset prices and macroeconomic dynamics of shocks that improve real investment opportunities and thus affect the representative household's marginal utility.

These investment shocks generate differences in risk premia due to their heterogeneous impact on firms: Using data on asset returns, I find that a positive investment shock leads to high marginal utility states. A general equilibrium model with investment shocks matches key features of macroeconomic quantities and asset prices.

Economic Activity of Firms forex broker ip address Asset Prices. Annual Review of Financial Economics. Investment, Idiocyncratic Risk, mechanical binary option strategy that works Ownership.

High-powered incentives may induce higher managerial effort, but they also expose managers to idiosyncratic risk. If managers are risk averse, they might underinvest when firm-specific uncertainty increases, leading to suboptimal investment decisions from the perspective of well-diversified shareholders.

We empirically document that, when idiosyncratic risk rises, firm investment falls, and more so when managers own a larger fraction of the firm.

This negative effect of managerial risk aversion on investment stochastic portfolio theory and stock market equilibrium pdf mitigated if executives are compensated with options rather than with shares or if institutional investors form a binary option traders insight tool strategies a part of the shareholder base.

Firm Characteristics and Stock Returns: The Role of Investment-Specific Shocks. Review of Financial Studies. Using a calibrated structural model, we show that these firm characteristics are correlated with the ratio of growth opportunities to firm value, which affects firms' exposures to capital-embodied productivity shocks and risk premia. We thus provide a unified explanation for several apparent anomalies in the cross-section of stock returnsnamely, predictability of returns by these firm characteristics and return comovement among firms with similar characteristics.

Organization Capital and the Cross-Section of Expected Returns. Organization capital is a production factor that is embodied in the firm's key talent and has an efficiency that is firm specific. As a result, both shareholders and management have a claim on the cash flows accruing from organization capital. Because the division of rents between shareholders and key talent can systematically vary over time, shareholders investing in organization capital are exposed to additional risks.

In our model, key talent can transfer a fraction of the firm's organization capital to a new enterprise, and the benefits of this reallocation vary systematically. This outside option determines the division of cash flows from organization capital between shareholders and key talent, and renders firms with high organization capital riskier.

We construct a measure of organization capital based on readily available accounting data and find that firms with more organization capital relative to their industry peers outperform firms with less organization capital by 4.

This dispersion in risk premia is not explained by the CAPM, the Fama and French or Carhart models.

Eckhard Platen | University of Technology Sydney

Our model offers additional testable implications that are supported by the data. Portfolio Choice with Illiquid Assets. We extend the standard Merton model to include an illiquid asset that can only be traded at infrequent, stochastic intervals.

Because consumption is financed through liquid wealth only, the presence of illiquidity leads to increased and state-dependent risk aversion. Illiquidity leads to under-investment in both the liquid and illiquid risky asset, relative to the standard Merton case. We demonstrate that the effect of illiquidity can be quantitatively large, because in contrast to transaction costs models, the shadow cost of illiquidity is unbounded.

The presence of liquidity risk distorts the allocation of the liquid and illiquid assets even when liquid and illiquid asset returns are uncorrelated and the investor has log utility.

The Value and Ownership of Intangible Capital. Growth Opportunities, Technology Shocks and Asset Prices.

Federal Reserve Bank of San Francisco | Research, Economic Research, Publications, Working Papers

The key property of our model is that the present value of growth opportunities has higher beta with respect to IST shocks than the value of assets in place, which leads to three main implications.

First, firms with a higher fraction of growth opportunities in the firm value high-growth firms exhibit risk premia different from those of firms with fewer growth opportunities low-growth firms.

Second, high-growth firms co-move with each other, giving rise to a systematic factor in stock returns distinct from the market portfolio and related to the value factor. Third, stock return betas with respect to the IST shocks reveal cross-sectional heterogeneity in firms' growth opportunities.

We find empirical support for qualitative predictions of the model. We calibrate our model and show that its main predictions for investment dynamics, cash flows and expected returns are quantitatively consistent with the data. Long-run Bulls and Bears. Journal of Monetary Economics. Financial Relationship and the Limits to Arbitrage. Technological Innovation, Resource Allocation and Growth. Quarterly Journal of Economics.

Adverse Selection, Slow Moving Capital and Misallocation. Journal of Financial Economics. In Search of Ideas: Technological Innovation and Executive Pay Inequality. Financial Frictions and Employment During the Great Depression. Creative Destruction and the Stock Market.

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