|
on Utility Models and Prospect Theories |
| By: | Christensen, Bent Jesper (Department of Finance, Copenhagen Business School); Raahauge, Peter (Department of Finance, Copenhagen Business School) |
| Abstract: | We consider a random utility extension of the fundamental Lucas (1978) equilibrium asset pricing model. The resulting structural model leads naturally to a likelihood function. We estimate the model using U.S. asset market data from 1871 to 2000, using both dividends and earnings as state variables. We find that current dividends do not forecast future utility shocks, whereas current utility shocks do forecast future dividends. The estimated structural model produces a sequence of predicted utility shocks which provide better forecasts of future long-horizon stock market returns than the classical dividend-price ratio. |
| Keywords: | Randomutility; asset pricing; maximumlikelihood; structuralmodel; return predictability |
| JEL: | G00 |
| Date: | 2004–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsfin:2004_007&r=upt |
| By: | Chris van Klaveren (SCHOLAR, University of Amsterdam); Bernard van Praag (SCHOLAR, University of Amsterdam, DIW, CESifo and IZA Bonn); Henriette Maassen van den Brink (SCHOLAR, University of Amsterdam) |
| Abstract: | Although the number of immigrant households in the Netherlands is substantial, the labor supply choices of this group are usually neglected in empirical studies because these households are usually under-sampled. We use a stratified sample of Turkish, Surinamese/Antillean and Dutch households that enables us to discuss how two-earner households allocate their time to different activities. In order to do so, we empirically estimate a collective household labor supply model. The main findings are that: (1) Leisure and household income are the most important variables in the utility function of the male; (2) Leisure, total household production and total household production interacted with family size are important variables in the utility function of the female. The latter two are especially important for Turkish and Surinamese/Antillean females; (3) The utility of Turkish and Dutch males weighs slightly more than the utility of the partner in the household utility function. For Surinamese/Antillean families we find the opposite; (4) Utility weighting depends on the presence of children and on the hourly wage rates of both partners; (5) The labor supply curve is forward bending for both male and female in terms of their own wage. The labor supply curve is backward bending for both male and female in terms of the partner’s wage. We find this for all household types; (6) The presence of (more) children reduces the hours of labor supplied by women and increases the number of hours supplied by men. |
| Keywords: | collective household models, labor supply, intra-household, time allocation |
| JEL: | D12 D13 J22 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2172&r=upt |
| By: | Jesús Getán, Jesús Montes and Carles Rafels (Universitat de Barcelona) |
| Abstract: | The monotonic core of a cooperative game with transferable utility (T.U.-game) is the set formed by all its Population Monotonic Allocation Schemes. In this paper we show that this set always coincides with the core of certain game associated to the initial game. |
| Keywords: | Cooperative games, monotonic core, population monotonic allocation schemes, restricted games |
| JEL: | C71 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bar:bedcje:2006155&r=upt |
| By: | Ignacio Cascos; Ilya Molchanov |
| Abstract: | We describe a general framework for measuring risks, where the risk measure takes values in an abstract cone. It is shown that this approach naturally includes the classical risk measures and set-valued risk measures and yields a natural definition of vector-valued risk measures. Several main constructions of risk measures are described in this abstract axiomatic framework. It is shown that the concept of depth-trimmed (or central) regions from the multivariate statistics is closely related to the definition of risk measures. In particular, the halfspace trimming corresponds to the Value-at-Risk, while the zonoid trimming yields the expected shortfall. In the abstract framework, it is shown how to establish a both-ways correspondence between risk measures and depth-trimmed regions. It is also demonstrated how the lattice structure of the space of risk values influences this relationship. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wsrepe:ws063815&r=upt |
| By: | Østrup, Finn (Department of Finance, Copenhagen Business School) |
| Abstract: | The article analyses how government spending is determined under different exchange rate regimes in the context of a small open economy. Assuming nominal wage contracts which last for one period and assuming a benevolent government which determines government spending to optimise a representative individual’s utility, it is demonstrated that there are differences between exchange rate regimes with respect to the level of government spending. These differences arise first because a rise in government spending affects macroeconomic variables differently under different exchange rate regimes, and second because the government’s inclination to expand government spending is affected by inflation which depends on the exchange rate regime. At low rates of inflation, the government is inclined to set a higher level of government spending under a fixed exchange rate regime than under a floating exchange rate regime in which the monetary authority optimises preferences which include an employment target and an inflation target. As government spending affects the representative individual’s utility, the choice of exchange rate regime has an impact on welfare. |
| Keywords: | exchange rate regimes; fiscal policy; monetary union; inflation targeting |
| JEL: | E42 E61 E62 F33 |
| Date: | 2005–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsfin:2005_001&r=upt |
| By: | Maite Mármol, M. Mercè Claramunt (Universitat de Barcelona) |
| Abstract: | In this paper we analyze the time of ruin in a risk process with the interclaim times being Erlang(n) distributed and a constant dividend barrier. We obtain an integro-differential equation for the Laplace Transform of the time of ruin. Explicit solutions for the moments of the time of ruin are presented when the individual claim amounts have a distribution with rational Laplace transform. Finally, some numerical results and a compare son with the classical risk model, with interclaim times following an exponential distribution, are given |
| Keywords: | Risk theory, Generalized Erlang (n) distribution, constant dividend barrier, time of ruin, Laplace Transform |
| JEL: | G |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bar:bedcje:2006157&r=upt |
| By: | Varma Jayanth R; Barua Samir K |
| Abstract: | We estimate the equity risk premium in India using data for the last 25 years. We address the shortcomings of existing indices by constructing our own total return index for the 1980s and early 1990s. We use our estimates of the extent of financial repression during this period to construct a series of the risk free rate in India going back to the early 1980s. We find that the equity risk premium is about 8?% on a geometric mean basis and about 12?% on an arithmetic mean basis. There is no significant difference between the pre reform and post reform period: the premium has declined marginally on a geometric mean basis and has risen slightly on an arithmetic mean basis. The reason for this divergence between the sub period behaviour of the two means is the increase in the annualized standard deviation of stock market returns from less than 20% in the pre reform period to about 25% in the post reform period. The higher standard deviation depresses the geometric mean in the post reform period. |
| Date: | 2006–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:2006-06-04&r=upt |
| By: | Tigran Poghosyan; Evzen Kocenda; |
| Abstract: | This paper studies foreign exchange risk premium using the uncovered interest rate parity framework in a single country context. The analysis is performed using weekly data on foreign and domestic currency deposits in Armenian banking system. The paper provides the results of the simple tests of uncovered interest parity condition, which indicate that contrary to established view dominating in empirical literature there is a positive correspondence between exchange rate depreciation and interest rate differentials in Armenian deposit market. Furthermore, the paper presents and discusses a systematic positive risk premium required by the economic agents for foreign exchange transactions, which increases over the investment horizon. The two currency affine term structure framework is applied to identify the factors driving the systematic exchange rate risk premium in Armenia. At the end, possible directions for further research are outlined. |
| Keywords: | “forward discount” puzzle, exchange rate risk, affine term structure models, foreign and domestic deposits, transition and emerging markets, Armenia |
| JEL: | E43 E58 F31 G15 O16 P20 |
| Date: | 2006–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2006-811&r=upt |