The Experts below are selected from a list of 12441 Experts worldwide ranked by ideXlab platform

Benedict G C Dellaert - One of the best experts on this subject based on the ideXlab platform.

  • Behavioral Finance decumulation and the regulatory strategy for robo advice
    Social Science Research Network, 2019
    Co-Authors: Tom Baker, Benedict G C Dellaert
    Abstract:

    This working paper surveys the decumulation services offered by investment robo-advisors as a case study with which to examine regulatory and market structure issues raised by automated financial advice. We provide a short introduction to decumulation, describing some of the uncertainties involved in identifying optimal decumulation strategies and sketching a few of the ‘rules of thumb’ that financial advisors have developed in this area in the face of this uncertainty. Next we describe Behavioral effects that could inhibit consumers from following an optimal decumulation strategy, concluding that, left to their own devices, consumers are likely to make sub-optimal decumulation decisions. Then we describe some potentially useful automated decumulation services that are available on the market and present the results of a survey assessing whether those services are offered by investment robo-advisors. Finally, we discuss market structures that may inhibit financial advisors from implementing optimal decumulation strategies for their clients and explore whether there are regulatory strategies that could encourage financial advisors to provide better decumulation services. Two promising strategies are (1) adopting a record-keeping requirement for robo-advisors that is conceptually similar to the ‘black box’ requirement for commercial airlines, and (2) developing a set of robo-advice ‘do’s and don’ts’ and related input/output tests to confirm that these requirements are met.

  • Behavioral Finance decumulation and the regulatory strategy for robo advice
    U of Penn Inst for Law & Econ Research Paper, 2018
    Co-Authors: Tom Baker, Benedict G C Dellaert
    Abstract:

    textabstractThis working paper surveys the decumulation services offered by investment robo-advisors as a case study with which to examine regulatory and market structure issues raised by automated financial advice. We provide a short introduction to decumulation, describing some of the uncertainties involved in identifying optimal decumulation strategies and sketching a few of the ‘rules of thumb’ that financial advisors have developed in this area in the face of this uncertainty. Next we describe Behavioral effects that could inhibit consumers from following an optimal decumulation strategy, concluding that, left to their own devices, consumers are likely to make sub-optimal decumulation decisions. Then we describe some potentially useful automated decumulation services that are available on the market and present the results of a survey assessing whether those services are offered by investment robo-advisors. Finally, we discuss market structures that may inhibit financial advisors from implementing optimal decumulation strategies for their clients and explore whether there are regulatory strategies that could encourage financial advisors to provide better decumulation services. Two promising strategies are (1) adopting a record-keeping requirement for robo-advisors that is conceptually similar to the ‘black box’ requirement for commercial airlines, and (2) developing a set of robo-advice ‘do’s and don’ts’ and related input/output tests to confirm that these requirements are met.

Frank J. Fabozzi - One of the best experts on this subject based on the ideXlab platform.

  • option pricing with mixed levy subordinated price process and implied probability weighting function
    arXiv: Mathematical Finance, 2020
    Co-Authors: Abootaleb Shirvani, Svetlozar T. Rachev, Yuan Hu, Frank J. Fabozzi
    Abstract:

    It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this paper, we reconcile Behavioral Finance and rational Finance by incorporating investor behavior within the framework of dynamic asset pricing theory. To include the views of investors, we employ the method of subordination which has been proposed in the literature by including business (intrinsic, market) time. We define a mixed Levy subordinated model by adding a single subordinated Levy process to the well-known log-normal model, resulting in a new log-price process. We apply the proposed models to study the Behavioral Finance notion of "greed and fear" disposition from the perspective of rational dynamic asset pricing theory. The greedy or fearful disposition of option traders is studied using the shape of the probability weighting function. We then derive the implied probability weighting function for the fear and greed deposition of option traders in comparison to spot traders. Our result shows the diminishing sensitivity of option traders. Diminishing sensitivity results in option traders overweighting the probability of big losses in comparison to spot traders.

  • option pricing with mixed levy subordinated price process and implied probability weighting function
    Journal of Derivatives, 2020
    Co-Authors: Abootaleb Shirvani, Svetlozar T. Rachev, Yuan Hu, Frank J. Fabozzi
    Abstract:

    It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this article, we reconcile Behavioral Finance and rational Finance by incorporating investor behavior within the framework of dynamic asset pricing theory. To include the views of investors, we employ the method of subordination that has been proposed in the literature by including business (intrinsic, market) time. We define a mixed Levy subordinated model by adding a single subordinated Levy process to the well-known log-normal model, resulting in a new log-price process. We apply the proposed models to study the Behavioral Finance notion of “greed and fear” disposition from the perspective of rational dynamic asset pricing theory. The greedy or fearful disposition of option traders is studied using the shape of the probability weighting function. We then derive the implied probability weighting function for the fear and greed deposition of option traders in comparison to spot traders. Our result shows the diminishing sensitivity of option traders. Diminishing sensitivity results in option traders overweighting the probability of big losses in comparison to spot traders. TOPICS:Derivatives, options Key Findings • Behavioral Finance and rational Finance are reconciled by using a mixed Levy subordinated process. • The mixed Levy subordinated process develops a more realistic asset pricing model by incorporating the behavior and sentiment of investors in the log-return pricing model. • The implied probability weighting function under the mixed Levy subordinated process model indicates the diminishing sensitivity of option traders.

  • Behavioral Finance asset prices predictability equity premium puzzle volatility puzzle the rational Finance approach
    arXiv: Mathematical Finance, 2017
    Co-Authors: Svetlozar T. Rachev, Frank J. Fabozzi, Stoyan V Stoyanov, Stefan Mittnik, Abootaleb Shirvani
    Abstract:

    In this paper we address three main objections of Behavioral Finance to the theory of rational Finance, considered as anomalies the theory of rational Finance cannot explain: Predictability of asset returns, The Equity Premium, (The Volatility Puzzle. We offer resolutions of those objections within the rational Finance. We do not claim that those are the only possible explanations of the anomalies, but offer statistical models within the rational theory of Finance which can be used without relying on Behavioral Finance assumptions when searching for explanations of those anomalies.

Tom Baker - One of the best experts on this subject based on the ideXlab platform.

  • Behavioral Finance decumulation and the regulatory strategy for robo advice
    Social Science Research Network, 2019
    Co-Authors: Tom Baker, Benedict G C Dellaert
    Abstract:

    This working paper surveys the decumulation services offered by investment robo-advisors as a case study with which to examine regulatory and market structure issues raised by automated financial advice. We provide a short introduction to decumulation, describing some of the uncertainties involved in identifying optimal decumulation strategies and sketching a few of the ‘rules of thumb’ that financial advisors have developed in this area in the face of this uncertainty. Next we describe Behavioral effects that could inhibit consumers from following an optimal decumulation strategy, concluding that, left to their own devices, consumers are likely to make sub-optimal decumulation decisions. Then we describe some potentially useful automated decumulation services that are available on the market and present the results of a survey assessing whether those services are offered by investment robo-advisors. Finally, we discuss market structures that may inhibit financial advisors from implementing optimal decumulation strategies for their clients and explore whether there are regulatory strategies that could encourage financial advisors to provide better decumulation services. Two promising strategies are (1) adopting a record-keeping requirement for robo-advisors that is conceptually similar to the ‘black box’ requirement for commercial airlines, and (2) developing a set of robo-advice ‘do’s and don’ts’ and related input/output tests to confirm that these requirements are met.

  • Behavioral Finance decumulation and the regulatory strategy for robo advice
    U of Penn Inst for Law & Econ Research Paper, 2018
    Co-Authors: Tom Baker, Benedict G C Dellaert
    Abstract:

    textabstractThis working paper surveys the decumulation services offered by investment robo-advisors as a case study with which to examine regulatory and market structure issues raised by automated financial advice. We provide a short introduction to decumulation, describing some of the uncertainties involved in identifying optimal decumulation strategies and sketching a few of the ‘rules of thumb’ that financial advisors have developed in this area in the face of this uncertainty. Next we describe Behavioral effects that could inhibit consumers from following an optimal decumulation strategy, concluding that, left to their own devices, consumers are likely to make sub-optimal decumulation decisions. Then we describe some potentially useful automated decumulation services that are available on the market and present the results of a survey assessing whether those services are offered by investment robo-advisors. Finally, we discuss market structures that may inhibit financial advisors from implementing optimal decumulation strategies for their clients and explore whether there are regulatory strategies that could encourage financial advisors to provide better decumulation services. Two promising strategies are (1) adopting a record-keeping requirement for robo-advisors that is conceptually similar to the ‘black box’ requirement for commercial airlines, and (2) developing a set of robo-advice ‘do’s and don’ts’ and related input/output tests to confirm that these requirements are met.

Abootaleb Shirvani - One of the best experts on this subject based on the ideXlab platform.

  • option pricing with mixed levy subordinated price process and implied probability weighting function
    arXiv: Mathematical Finance, 2020
    Co-Authors: Abootaleb Shirvani, Svetlozar T. Rachev, Yuan Hu, Frank J. Fabozzi
    Abstract:

    It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this paper, we reconcile Behavioral Finance and rational Finance by incorporating investor behavior within the framework of dynamic asset pricing theory. To include the views of investors, we employ the method of subordination which has been proposed in the literature by including business (intrinsic, market) time. We define a mixed Levy subordinated model by adding a single subordinated Levy process to the well-known log-normal model, resulting in a new log-price process. We apply the proposed models to study the Behavioral Finance notion of "greed and fear" disposition from the perspective of rational dynamic asset pricing theory. The greedy or fearful disposition of option traders is studied using the shape of the probability weighting function. We then derive the implied probability weighting function for the fear and greed deposition of option traders in comparison to spot traders. Our result shows the diminishing sensitivity of option traders. Diminishing sensitivity results in option traders overweighting the probability of big losses in comparison to spot traders.

  • option pricing with mixed levy subordinated price process and implied probability weighting function
    Journal of Derivatives, 2020
    Co-Authors: Abootaleb Shirvani, Svetlozar T. Rachev, Yuan Hu, Frank J. Fabozzi
    Abstract:

    It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this article, we reconcile Behavioral Finance and rational Finance by incorporating investor behavior within the framework of dynamic asset pricing theory. To include the views of investors, we employ the method of subordination that has been proposed in the literature by including business (intrinsic, market) time. We define a mixed Levy subordinated model by adding a single subordinated Levy process to the well-known log-normal model, resulting in a new log-price process. We apply the proposed models to study the Behavioral Finance notion of “greed and fear” disposition from the perspective of rational dynamic asset pricing theory. The greedy or fearful disposition of option traders is studied using the shape of the probability weighting function. We then derive the implied probability weighting function for the fear and greed deposition of option traders in comparison to spot traders. Our result shows the diminishing sensitivity of option traders. Diminishing sensitivity results in option traders overweighting the probability of big losses in comparison to spot traders. TOPICS:Derivatives, options Key Findings • Behavioral Finance and rational Finance are reconciled by using a mixed Levy subordinated process. • The mixed Levy subordinated process develops a more realistic asset pricing model by incorporating the behavior and sentiment of investors in the log-return pricing model. • The implied probability weighting function under the mixed Levy subordinated process model indicates the diminishing sensitivity of option traders.

  • Behavioral Finance asset prices predictability equity premium puzzle volatility puzzle the rational Finance approach
    arXiv: Mathematical Finance, 2017
    Co-Authors: Svetlozar T. Rachev, Frank J. Fabozzi, Stoyan V Stoyanov, Stefan Mittnik, Abootaleb Shirvani
    Abstract:

    In this paper we address three main objections of Behavioral Finance to the theory of rational Finance, considered as anomalies the theory of rational Finance cannot explain: Predictability of asset returns, The Equity Premium, (The Volatility Puzzle. We offer resolutions of those objections within the rational Finance. We do not claim that those are the only possible explanations of the anomalies, but offer statistical models within the rational theory of Finance which can be used without relying on Behavioral Finance assumptions when searching for explanations of those anomalies.

Robert J. Shiller - One of the best experts on this subject based on the ideXlab platform.

  • from efficient markets theory to Behavioral Finance
    Journal of Economic Perspectives, 2003
    Co-Authors: Robert J. Shiller
    Abstract:

    Academic e nance has evolved a long way from the days when the efe cient markets theory was widely considered to be proved beyond doubt. Behavioral e nance— that is, e nance from a broader social science perspective including psychology and sociology— is now one of the most vital research programs, and it stands in sharp contradiction to much of efe cient markets theory. The efe cient markets theory reached its height of dominance in academic circles around the 1970s. At that time, the rational expectations revolution in economic theory was in its e rst blush of enthusiasm, a fresh new idea that occupied the center of attention. The idea that speculative asset prices such as stock prices always incorporate the best information about fundamental values and that prices change only because of good, sensible information meshed very well with theoretical trends of the time. Prominent e nance models of the 1970s related speculative asset prices to economic fundamentals, using rational expectations to tie together e nance and the entire economy in one elegant theory. For example, Robert Merton published “ An Intertemporal Capital Asset Pricing Model” in 1973, which showed how to generalize the capital asset pricing model to a comprehensive intertemporal general equilibrium model. Robert Lucas published “ Asset Prices in an Exchange Economy” in 1978, which showed that in a rational expectations general equilibrium, rational asset prices may have a forecastable element that is related to the forecastability of consumption. Douglas Breeden published his theory of “ consumption betas” in 1979, where a stock’ s beta (which measures the sensitivity of its return compared to some index) was determined by the correlation

  • from efe cient markets theory to Behavioral Finance
    Journal of Economic Perspectives, 2003
    Co-Authors: Robert J. Shiller
    Abstract:

    Academic e nance has evolved a long way from the days when the efe cient markets theory was widely considered to be proved beyond doubt. Behavioral e nance— that is, e nance from a broader social science perspective including psychology and sociology— is now one of the most vital research programs, and it stands in sharp contradiction to much of efe cient markets theory. The efe cient markets theory reached its height of dominance in academic circles around the 1970s. At that time, the rational expectations revolution in economic theory was in its e rst blush of enthusiasm, a fresh new idea that occupied the center of attention. The idea that speculative asset prices such as stock prices always incorporate the best information about fundamental values and that prices change only because of good, sensible information meshed very well with theoretical trends of the time. Prominent e nance models of the 1970s related speculative asset prices to economic fundamentals, using rational expectations to tie together e nance and the entire economy in one elegant theory. For example, Robert Merton published “ An Intertemporal Capital Asset Pricing Model” in 1973, which showed how to generalize the capital asset pricing model to a comprehensive intertemporal general equilibrium model. Robert Lucas published “ Asset Prices in an Exchange Economy” in 1978, which showed that in a rational expectations general equilibrium, rational asset prices may have a forecastable element that is related to the forecastability of consumption. Douglas Breeden published his theory of “ consumption betas” in 1979, where a stock’ s beta (which measures the sensitivity of its return compared to some index) was determined by the correlation

  • from efficient market theory to Behavioral Finance
    2002
    Co-Authors: Robert J. Shiller
    Abstract:

    The efficient markets theory reached the height of its dominance in academic circles around the 1970s. Faith in this theory was eroded by a succession of discoveries of anomalies, many in the 1980s, and of evidence of excess volatility of returns. Finance literature in this decade and after suggests a more nuanced view of the value of the efficient markets theory, and, starting in the 1990s, a blossoming of research on Behavioral Finance. Some important developments in the 1990s and recently include feedback theories, models of the interaction of smart money with ordinary investors, and evidence on obstacles to smart money.

  • bubbles human judgment and expert opinion
    2001
    Co-Authors: Robert J. Shiller
    Abstract:

    Research in psychology and Behavioral Finance is surveyed for evidence to what extent experts such as professional investment managers or endowment trustees may behave in such a way as to help perpetuate speculative bubbles in financial markets. This paper discusses scholarly psychological literature on the representativeness heuristic, overconfidence, attentional anomalies, self-esteem, conformity pressures, salience and justification for insights into weaknesses in expert opinion. The role of the prudent person standard and the news media in influencing experts is considered. The relevance of the literature on testing of the efficient markets theory is discussed.