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Essays On Financial And Monetary Economics, Xi Wang
Essays On Financial And Monetary Economics, Xi Wang
Arts & Sciences Electronic Theses and Dissertations
The first part of this dissertation explores an empirical relevance to understand the equity premium puzzle. Since only the wealthiest people invest significant amounts in the stock market (limited participation), it is reasonable to combine the consumption data of the wealthy, instead of aggregate data, with observed asset returns to estimate the risk aversion coefficient (RRA). I approximate the consumption by the rich from two angles: one explores the income and wealth data to back out synthetic consumption directly, and the other explores the sales data to approximate the expenditure by the rich. By using the created indices, the lowest …
On The Wedge Between Theoretical And Actual Prices And Its Implications For Investment Decisions, Luca Pezzo
On The Wedge Between Theoretical And Actual Prices And Its Implications For Investment Decisions, Luca Pezzo
Arts & Sciences Electronic Theses and Dissertations
State of the arts equilibrium models explain several financial markets' regularities but still miss many important dimensions. My research investigates the existing wedge between theoretical and actual prices and its implications for investment decisions. In the first chapter, I develop a new approach to locate and quantify the wedge between the main-stream Representative Agent pricing of the U.S. market portfolio and actual data. The determinants of the wedge are high uncertain and illiquid recessionary periods where, according to the marginal pricing rules, more efficient portfolios than the market can be formed. Since illiquidity is a major determinant, chapter two and …