The Experts below are selected from a list of 327 Experts worldwide ranked by ideXlab platform
Josef Zechner - One of the best experts on this subject based on the ideXlab platform.
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Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium
Journal of Political Economy, 1994Co-Authors: Anat R. Admati, Paul Pfleiderer, Josef ZechnerAbstract:The authors develop a model in which a large investor has access to a costly monitoring technology affecting securities' expected payoffs. Allocations of shares are determined through trading among risk-averse investors. Despite the free-rider problem associated with monitoring, risk-sharing considerations lead to equilibria in which monitoring takes place. Under certain conditions, the equilibrium allocation is Pareto efficient and all agents hold the Market Portfolio of risky assets independent of the specific monitoring technology. Otherwise, distortions in risk sharing may occur and monitoring activities that reduce the expected payoff on the Market Portfolio may be undertaken. Copyright 1994 by University of Chicago Press.
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large shareholder activism risk sharing and financial Market equilibrium
Journal of Political Economy, 1994Co-Authors: Anat R. Admati, Paul Pfleiderer, Josef ZechnerAbstract:We develop a model in which a large investor has access to a costly monitoring technology affecting securities' expected payoffs. Allocations of shares are determined through trading among risk-averse investors. Despite the free-rider problem associated with monitoring, risk-sharing considerations lead to equilibria in which monitoring takes place. Under certain conditions the equilibrium allocation is Pareto efficient and all agents hold the Market Portfolio of risky assets independent of the specific monitoring technology. Otherwise distortions in risk sharing may occur, and monitoring activities that reduce the expected payoff on the Market Portfolio may be undertaken.
Anat R. Admati - One of the best experts on this subject based on the ideXlab platform.
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Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium
Journal of Political Economy, 1994Co-Authors: Anat R. Admati, Paul Pfleiderer, Josef ZechnerAbstract:The authors develop a model in which a large investor has access to a costly monitoring technology affecting securities' expected payoffs. Allocations of shares are determined through trading among risk-averse investors. Despite the free-rider problem associated with monitoring, risk-sharing considerations lead to equilibria in which monitoring takes place. Under certain conditions, the equilibrium allocation is Pareto efficient and all agents hold the Market Portfolio of risky assets independent of the specific monitoring technology. Otherwise, distortions in risk sharing may occur and monitoring activities that reduce the expected payoff on the Market Portfolio may be undertaken. Copyright 1994 by University of Chicago Press.
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large shareholder activism risk sharing and financial Market equilibrium
Journal of Political Economy, 1994Co-Authors: Anat R. Admati, Paul Pfleiderer, Josef ZechnerAbstract:We develop a model in which a large investor has access to a costly monitoring technology affecting securities' expected payoffs. Allocations of shares are determined through trading among risk-averse investors. Despite the free-rider problem associated with monitoring, risk-sharing considerations lead to equilibria in which monitoring takes place. Under certain conditions the equilibrium allocation is Pareto efficient and all agents hold the Market Portfolio of risky assets independent of the specific monitoring technology. Otherwise distortions in risk sharing may occur, and monitoring activities that reduce the expected payoff on the Market Portfolio may be undertaken.
Paul Pfleiderer - One of the best experts on this subject based on the ideXlab platform.
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Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium
Journal of Political Economy, 1994Co-Authors: Anat R. Admati, Paul Pfleiderer, Josef ZechnerAbstract:The authors develop a model in which a large investor has access to a costly monitoring technology affecting securities' expected payoffs. Allocations of shares are determined through trading among risk-averse investors. Despite the free-rider problem associated with monitoring, risk-sharing considerations lead to equilibria in which monitoring takes place. Under certain conditions, the equilibrium allocation is Pareto efficient and all agents hold the Market Portfolio of risky assets independent of the specific monitoring technology. Otherwise, distortions in risk sharing may occur and monitoring activities that reduce the expected payoff on the Market Portfolio may be undertaken. Copyright 1994 by University of Chicago Press.
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large shareholder activism risk sharing and financial Market equilibrium
Journal of Political Economy, 1994Co-Authors: Anat R. Admati, Paul Pfleiderer, Josef ZechnerAbstract:We develop a model in which a large investor has access to a costly monitoring technology affecting securities' expected payoffs. Allocations of shares are determined through trading among risk-averse investors. Despite the free-rider problem associated with monitoring, risk-sharing considerations lead to equilibria in which monitoring takes place. Under certain conditions the equilibrium allocation is Pareto efficient and all agents hold the Market Portfolio of risky assets independent of the specific monitoring technology. Otherwise distortions in risk sharing may occur, and monitoring activities that reduce the expected payoff on the Market Portfolio may be undertaken.
Thierry Post - One of the best experts on this subject based on the ideXlab platform.
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linear tests for decreasing absolute risk aversion stochastic dominance
Management Science, 2015Co-Authors: Thierry Post, Yi Fang, Milos KopaAbstract:We develop and implement linear formulations of convex stochastic dominance relations based on decreasing absolute risk aversion (DARA) for discrete and polyhedral choice sets. Our approach is based on a piecewise-exponential representation of utility and a local linear approximation to the exponentiation of log marginal utility. An empirical application to historical stock Market data suggests that a passive stock Market Portfolio is DARA stochastic dominance inefficient relative to concentrated Portfolios of small-cap stocks. The mean-variance rule and N th-order stochastic dominance rules substantially underestimate the degree of Market Portfolio inefficiency because they do not penalize the unfavorable skewness of diversified Portfolios, in violation of DARA. This paper was accepted by James Smith, decision analysis.
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general linear formulations of stochastic dominance criteria
European Journal of Operational Research, 2013Co-Authors: Thierry Post, Milos KopaAbstract:We develop and implement linear formulations of general Nth order stochastic dominance criteria for discrete probability distributions. Our approach is based on a piece-wise polynomial representation of utility and its derivatives and can be implemented by solving a relatively small system of linear inequalities. This approach allows for comparing a given prospect with a discrete set of alternative prospects as well as for comparison with a polyhedral set of linear combinations of prospects. We also derive a linear dual formulation in terms of lower partial moments and co-lower partial moments. An empirical application to historical stock Market data suggests that the passive stock Market Portfolio is highly inefficient relative to actively managed Portfolios for all investment horizons and for nearly all investors. The results also illustrate that the mean–variance rule and second-order stochastic dominance rule may not detect Market Portfolio inefficiency because of non-trivial violations of non-satiation and prudence.
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a Portfolio optimality test based on the first order stochastic dominance criterion
Journal of Financial and Quantitative Analysis, 2009Co-Authors: Milos Kopa, Thierry PostAbstract:Existing approaches to testing for the efficiency of a given Portfolio make strong parametric assumptions about investor preferences and return distributions. Stochastic dominance-based procedures promise a useful nonparametric alternative. However, these procedures have been limited to considering binary choices. In this paper we take a new approach that considers all diversified Portfolios and thereby introduce a new concept of first-order stochastic dominance (FSD) optimality of a given Portfolio relative to all possible Portfolios. Using our new test, we show that the U.S. stock Market Portfolio is significantly FSD nonoptimal relative to benchmark Portfolios formed on Market capitalization and book-to-Market equity ratios. Without appealing to parametric assumptions about the return distribution, we conclude that no nonsatiable investor would hold the Market Portfolio in the face of the attractive premia of small caps and value stocks.
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risk aversion and skewness preference
Journal of Banking and Finance, 2008Co-Authors: Thierry Post, Pim Van Vliet, Haim LevyAbstract:Empirically, co-skewness of asset returns seems to explain a substantial part of the cross-sectional variation of mean return not explained by beta. This finding is typically interpreted in terms of a risk averse representative investor with a cubic utility function. This paper questions this interpretation. We show that the empirical tests fail to impose risk aversion and the implied utility function takes an inverse S-shape. Unfortunately, the first-order conditions are not sufficient to guarantee that the Market Portfolio is the global maximum for this utility function, and our results suggest that the Market Portfolio is more likely to represent the global minimum. In addition, if we do impose risk aversion, then co-skewness has minimal explanatory power.
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second order stochastic dominance reward risk Portfolio selection and the capm
Journal of Financial and Quantitative Analysis, 2008Co-Authors: Enrico G De Giorgi, Thierry PostAbstract:Starting from the reward-risk model for Portfolio selection introduced in De Giorgi (2005), we derive the reward-risk Capital Asset Pricing Model (CAPM) analogously to the classical mean-variance CAPM. In contrast to the mean-variance model, reward-risk Portfolio selection arises from an axiomatic definition of reward and risk measures based on a few basic principles, including consistency with second-order stochastic dominance. With complete Markets, we show that at any financial Market equilibrium, reward-risk investors' optimal allocations are comonotonic and, therefore, our model reduces to a representative investor model. Moreover, the pricing kernel is an explicitly given, non-increasing function of the Market Portfolio return, reflecting the representative investor's risk attitude. Finally, an empirical application shows that the reward-risk CAPM captures the cross section of U.S. stock returns better than the mean-variance CAPM does.
Klaus Reiner Schenkhoppe - One of the best experts on this subject based on the ideXlab platform.
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capital asset pricing model capm
2015Co-Authors: Igor V Evstigneev, Thorsten Hens, Klaus Reiner SchenkhoppeAbstract:The chapter introduces the reader to the celebrated Capital Asset Pricing Model (CAPM). It opens with the statement of a general version of the CAPM followed by a proof based on an explicit formula for the efficient Portfolios. It then outlines an equilibrium model for the CAPM, defines the concepts of the Market Portfolio and capitalization weights and establishes the efficiency of the Market Portfolio. The highlight of the chapter is the Sharpe-Lintner-Mossin CAPM formula. Key notions related to it (the beta of an asset, risk premium, etc.) are defined and discussed.
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on the evolution of investment strategies and the kelly rule a darwinian approach
Social Science Research Network, 2006Co-Authors: Terje Lensberg, Klaus Reiner SchenkhoppeAbstract:This paper complements theoretical studies on the Kelly rule in evolutionary finance by studying a Darwinian model of selection and reproduction in which the diversity of investment strategies is maintained through genetic programming. We find that investment strategies which optimize long-term performance can emerge in Markets populated by unsophisticated investors. Regardless whether the Market is complete or incomplete and whether states are i.i.d. or Markov, the Kelly rule is obtained as the asymptotic outcome. With price-dependent rather than just state-dependent investment strategies, the Market Portfolio plays an important role as a protection against severe losses in volatile Markets.
