the dark side of the sun how solar power production affects the market value of solar and gas sources abstract using daily data for the italian wholesale day ahead power market over the period 2008 2013 we assess the impact of solar production on the market value of solar and gas sources defined using the concepts of value factor and unit revenues we find that on average solar generation negatively affects the solar source market value causing a departure from the grid parity condition and mining their competitiveness once public incentives are removed this negative relation is not constant over time and becomes stronger for increasing solar penetration in the energy mix interestingly the opposite is found when looking at gas while the relation between solar production and the gas market value is negative or not significant when the former is low it turns positive for higher levels of solar production this is the result of a change in gas producers bidding strategies indeed in the italian power market the highest hourly price has shifted from the peak daytime when solar production is concentrated to the off peak nighttime when solar is absent from the market and gas can exploit temporary market power

the impact of wind power generation on the electricity price in germany abstract this paper investigates the relationship between intermittent wind power generation and electricity price behaviour in germany using a garch model i evaluate the effect of wind electricity generation on the level and the volatility of the electricity price in an integrated approach the results show that variable wind power reduces the price level but increases its volatility this paper s results also indicate that regulatory change has stabilised the wholesale price the electricity price volatility has decreased in germany after a modification of the marketing mechanism of renewable electricity this gives confidence that further adjustments to regulation and policy may foster a better integration of renewables into the power system

consensus consumer and intertemporal asset pricing with heterogeneous beliefs le fichier attache est egalement edite dans les cahier de la chaire les particuliers face aux risques de l institut de finance de dauphine cahier n 7 mars 2007

does market incompleteness matter this paper argues that incompleteness of intertemporal financial markets has little effect on welfare prices or consumption in an economy with a single consumption good provided that traders are long lived and patient a riskless bond is traded shocks are transitory and there is no aggregate risk in an economy with aggregate risk a similar conclusion holds provided traders share the same crra utility function and the right assets are traded examples demonstrate that these conclusions need not hold if the wrong assets are traded or if the economy has multiple consumption goods

voluntary disclosure of greenhouse gas emissions contrasting the carbon disclosure project and corporate reports as global warming continues to attract growing levels of attention various stakeholders states general public investors and lobbyists have put climate change on corporate agendas and expect firms to disclose relevant greenhouse gas ghg information in this paper we investigate the consistency of the ghg information voluntarily disclosed by french listed firms through two different communication channels corporate reports cr and the carbon disclosure project cdp more precisely we contrast the amounts of ghg emissions reported and the methodological explanations provided named traceability in each channel consistent with a stakeholder theory perspective we find that ghg amounts are significantly lower in the cr than in the cdp we also find that firms increase the cr figures traceability when there is a discrepancy between disclosures in the two channels we suggest that the aim of this greater traceability is to enhance information credibility across the different channels used

generalizing the permanent income hypothesis revisiting friedman s conjecture on consumption abstract friedman s contribution to the consumption literature goes well beyond the seminal permanent income hypothesis he conjectured that the marginal propensity to consume out of financial wealth shall be larger than out of human wealth the present discounted value of future labor income i present an explicitly solved model to deliver this widely noted consumption property by specifying that the conditional variance of changes in income increases with its level a larger realization of income not only implies a higher level of human wealth but also signals a riskier stream of future labor income inducing a higher precautionary saving and thus giving rise to friedman s conjecture appropriately adjusting human wealth for income risk i show that friedman s conjecture may be formulated as a generalized permanent income hypothesis i further show that friedman s conjecture captures the first order effect of stochastic precautionary savings finally i propose a natural decomposition of the optimal saving rule to formalize various motives for holding wealth as emphasized in friedman m 1957 a theory of the consumption function princeton university press princeton

equilibrium in securities markets with heterogeneous investors and unspanned income risk abstract in a finite time horizon incomplete market continuous time setting with dividends and investor incomes governed by arithmetic brownian motions we derive closed form solutions for the equilibrium risk free rate and stock price for an economy with finitely many heterogeneous cara investors and unspanned income risk in equilibrium the sharpe ratio is the same as in an otherwise identical complete market economy whereas the risk free rate is lower and consequently the stock price is higher the reduction in the risk free rate is highest when the more risk averse investors face the largest unspanned income risk

optimal hedging and equilibrium in a dynamic futures market abstract this paper considers an agent maximizing the expected utility of the sum of the terminal value of a fixed portfolio of spot market assets and the terminal value of a margin account on a futures trading position closed form solutions for the optimal hedging strategy are provided in several special cases

optimal portfolio choice for long horizon investors with nontradable labor income this paper examines how risky labor income and retirement affect optimal portfolio choice with idiosyncratic labor income risk the optimal allocation to stocks is unambiguously larger for employed investors than for retired investors consistent with the typical recommendations of investment advisors increasing idiosyncratic labor income risk raises investors willingness to save and reduces their stock portfolio allocation towards the level of retired investors positive correlation between labor income and stock returns has a further negative effect and can actually reduce stockholdings below the level of retired investors financial advisors typically recommend that their customers invest more in stocks than in safe assets when they are working and to shift their investments towards safe assets when they retire jagannathan and kocherlakota 1996 malkiel 1996 by contrast the standard academic models of portfolio choice merton 1969 1971 samuelson 1969 show that retirement is irrelevant for portfolio decisions if investment opportunities are constant and human capital is tradable in this case the fraction of wealth optimally invested in risky assets should be constant over the lifetime of an individual recent research building on the pioneering work by merton 1971 shows that time varying investment opportunities result in portfolio rules with an intertemporal hedging component whose magnitude depends on the investment horizon of the investor kim and omberg 1996 balduzzi and lynch 1997 brennan schwartz and lagnado 1997 brandt 1999 campbell and viceira 1999 2001 barberis 2000 with time variation in investment opportunities retirement and death play an instrumental role as events that exogenously fix the individual s investment horizon more importantly retirement also marks the time at which individuals stop working and thereafter must live off their lifetime savings and possibly transfers from this perspective retirement matters for portfolio choice

stock market s reaction to disclosure of environmental violations evidence from china the stock market s reaction to information disclosure of environmental violation events eves is investigated multi dimensionally for chinese listed companies including variables such as pollution types information disclosure sources information disclosure levels modernization levels of the region where the company locates ultimate ownership of the company and ownership held by the largest shareholder using the method of event study daily abnormal return ar and accumulative abnormal return car are calculated under different event window for examining the extent to which the stock market responds to the eves furthermore statistical significance of the difference in stock market reaction is compared between event firms with different characteristics the relationship between car and its impact factors is examined by multivariate analysis the findings reveal that the average reduction in market value is estimated to be much lower than the estimated changes in market value for similar events in other countries demonstrating that the negative environmental events of chinese listed companies currently have weak impact on the stock market

corporate social responsibility ownership structure and political interference evidence from china prior research suggests that ownership structure is associated to corporate social responsibility csr in developed countries this article examines whether and how ownership structure affects csr in emerging markets using chinese firms social responsibility ranking our empirical evidences show that for non state owned firms corporate ownership dispersion is positively associated to csr however for state owned firms whose controlling shareholder is the state this relation is reversed we attribute the reversed relationship to political interferences and further test this hypothesis by demonstrating that regional economic development is negatively related to csr for state owned firms due to decreased political interference in more developed areas this study is the first to directly examine the relationship between the dispersion of corporate ownership and csr in emerging markets and our results depict that it is important to consider ownership type in assessing csr in emerging market where state ownership is still prevalent such as china the results also reveal that firm size profitability employee power leverage and growth opportunity affect csr in china

heterogeneous expectations and bond markets this paper presents a dynamic equilibrium model of bond markets in which two groups of agents hold heterogeneous expectations about future economic conditions the heterogeneous expectations cause agents to take on speculative positions against each other and therefore generate endogenous relative wealth fluctuation the relative wealth fluctuation amplifies asset price volatility and contributes to the time variation in bond premia our model shows that a modest amount of heterogeneous expectations can help explain several puzzling phenomena including the excessive volatility of bond yields the failure of the expectations hypothesis and the ability of a tent shaped linear combination of forward rates to predict bond returns the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

aggregation of heterogeneous time preferences we examine an economy whose consumers have different discount factors for utility possibly not exponential we characterize the properties of efficient allocations of resources and of the shadow prices that would decentralize such allocations we show in particular that the representative agent has a decreasing discount rate when as is usually posited all of a group s members have a constant discount rate and decreasing absolute risk aversion preferences we also identify conditions that lead the representative agent to have a rate of impatience that decreases with gross domestic product per capita

renewable generation and electricity prices taking stock and new evidence for germany and austria abstract economic theory predicts that the increase of renewable electricity production should reduce the price of electricity in the short run which is also known as the merit order effect although the merit order effect is only one of several consequences of renewable production on the electricity system it is crucial to determine its size for the economic evaluation of renewable energies in this paper we present a comprehensive overview of relevant past research results on the price effect of renewables additionally we conduct a new empirical analysis of the price effect of renewable production for the austrian german region a market that clearly qualifies for a merit order effect analysis given its characteristics based on the review and our own analysis we show that the merit order effect varies depending on the region and the assessment method chosen we also find that the size of this effect is less dispersed throughout different markets than previously suggested by the literature

factors that drive chinese listed companies in voluntary disclosure of environmental information based on the institutional theory this article attempts to examine two consecutive questions regarding the impact of various factors on corporate decision in environmental information disclosure eid 1 whether or not to disclose and 2 the level of disclosure the relevance of these factors is empirically tested using data collected from publicly listed manufacturing companies from 2006 to 2008 in china some interesting findings appear we find that firms that are state owned those that operate in environmentally sensitive industries those having more industrial peers engaged in eid and those with better reputation are more likely to disclose environmental information when it comes to the content of eid variables that attempt to capture external institutional pressures exhibit either no or weak explanatory power only the variable of organizational image and reputation is demonstrated to have a significant impact on both the act and the content of eid this study provides a snapshot of the dialogues between constituencies in the organizational field and eid development

a monte carlo method for optimal portfolios this paper proposes a new simulation based approach for optimal portfolio allocation in realistic environments with complex dynamics for the state variables and large numbers of factors and assets a first illustration involves a choice between equity and cash with nonlinear interest rate and market price of risk dynamics intertemporal hedging demands significantly increase the demand for stocks and exhibit low volatility we then analyze settings where stock returns are also predicted by dividend yields and where investors have wealth dependent relative risk aversion large scale problems with many assets including the nasdaq sp500 bonds and cash are also examined the question of optimal portfolio allocation has been of long standing interest for academics and practitioners in finance while the mean variance analysis of markowitz 1952 is still commonly used among portfolio managers it has been well understood since merton 1971 that long term investors would prefer portfolios that include hedging components to protect against fluctuations in their investment opportunities prompted by the seminal papers of merton 1969 1971 and samuelson 1969 studies have explored various aspects of the dynamic portfolio problem when asset prices follow diffusion processes e g richard 1975 this literature has relied for the most part on a dynamic programming approach to the problem more recent contributions by pliska 1986 karatzas lehoczky and shreve 1987 and cox and huang 1989 have proposed an alternative resolution method based on martingale techniques in the context of this approach an optimal portfolio formula was derived by ocone and karatzas 1991 this expression involves expectations of random variables depending on j6erme b detemple is at boston university school of management and cirano rene

business ethics and finance in greater china synthesis and future directions in sustainability csr and fraud following the financial crisis and recent recession the center of gravity of global economic growth and competitiveness is shifting toward emerging economies as a leading and increasingly influential emerging economy china is currently attracting the attention of academics practitioners and policy makers there has been an increase in research interest in and publications on issues relating to china within high quality international academic journals we therefore organized a special issue conference in conjunction with the journal of business ethics jbe in lhasa tibet on may 19 20 2014 on business ethics in greater china past present and future the papers for the special issue focused on the intersection of ethics and finance and fit within one of the three themes environment and sustainability corporate social responsibility and fraud within these themes issues of intellectual capital protection gender equality political connections regional development investor protection corporate stewardship trust and corruption and corporate transparency each play a significant role in this paper we survey these studies and the related literature to provide a comprehensive coverage of business ethics and finance issues that affect china

asset returns with transactions costs and uninsured individual risk abstract we explore whether incorporating an explicit motive for holding liquid assets within an equilibrium asset pricing model helps explain the following features of asset returns and turnover in the post war u s economy i the low risk free real interest rate ii the large spread between returns on liquid assets and stocks and iii the greater transaction velocity of liquid assets relative to stocks we introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities numerical simulations attempting to match the return data generate a ratio of liquid assets to income considerably below observed levels

do suppliers applaud corporate social performance the influence of corporate social performance csp on stakeholders is one of the focal issues in corporate social responsibility csr research using data of listed companies in china this paper examines whether csr behavior in the form of charitable donations garners a positive reaction from suppliers results derived from both level and change model regressions show that superior csp makes it easier for a firm to obtain trade credit from suppliers although the effect is significant only in non state owned enterprises non soes the results are robust to various measures of csp and endogeneity tests the results support the strategic philanthropy view and apply stakeholder theory in supply chain that strategic csr can help firms to attract suppliers and consolidate cooperative relationships with them which in turn benefits the firms in terms of more trade credit financing from suppliers this paper also shows that state owned enterprises and non soes have different csr intentions and use csr to achieve strategic goals in different ways the conclusions drawn from this study provide practical guidance on csr strategy suggesting that csr activities can help a firm in transition economies to enhance its corporate image establish and consolidate the good relationship with suppliers and obtain economic benefits or achieve long term business objectives

borrowing costs and the demand for equity over the life cycle abstract we construct a life cycle model that delivers realistic behavior for both equity holdings and borrowing the key model ingredient is a wedge between the cost of borrowing and the risk free investment return borrowing can either raise or lower equity demand depending on the cost of borrowing a borrowing rate equal to the expected return on equity which we show roughly matches the data minimizes the demand for equity alternative models with no borrowing or limited borrowing at the risk free rate cannot simultaneously fit empirical evidence on borrowing and equity holdings

incomplete markets and volatility abstract this paper shows that the precautionary motive combined with asset incompleteness is a major source of volatility and indeterminacy in financial markets price fluctuations originate from agents efforts to insure themselves through time by borrowing and lending instead of shifting income across states of nature by trading risky assets a high interest rate at a future date reduces the potential for future consumption smoothing via borrowing which leads to a strong precautionary motive and a low interest rate in the current period the negative feedback between future and current rates generates fluctuations this logic is developed in spec a cara normal exchange economy with many periods and endogenous interest rates when there is an intermediate level of market incompleteness and sufficient investor impatience fluctuations in the real interest rate can be large even though the aggregate endowment is constant spec has a unique equilibrium under a finite horizon on the other hand with a finite number of infinitely lived agents there exists a robust continuum of equilibria that are neither bubbles nor sunspots journal of economic literature classification numbers c61 d52 d58 g11 g12

interactions between the power and green certificate markets abstract the current trend of liberalising the power markets is combined with ambitious deployment plans for power production based on renewable energy supplies a new policy scheme to ensure this extension has been developed in the form of a green certificate system with a politically determined target of deployment in such a system producers of renewably based electricity receive tradable certificates in proportion to the electricity they produce the producer can thereby sell these certificates and receive additional revenue apart from the power price this paper studies the price and consumption effects of such a system with a simple model we show that the effects are ambiguous this ambiguity is caused by the interaction between the two markets therefore the green certificate system is difficult to manage if the state has parallel energy targets such as a desired deployment of renewably based energy and a stabilisation or reduction of the energy consumption in addition this complicates the regulation through a deployment target of renewably based power production as the regulator has to be aware of the different effects which follow a specific target until now these effects have not been considered in the analyses of the green certificate system when introducing the system even though it might have considerable consequences for the success of the system

environmental disclosures regulatory costs and changes in firm value abstract union carbide s chemical leak in bhopal india during december 1984 resulted in approximately 4 000 deaths and 200 000 injuries this study examines the market reaction of chemical firms other than union carbide to this catastrophe evidence indicates that a significant negative intra industry reaction occurred however firms with more extensive environmental disclosures in their financial report prior to the chemical leak experienced a less negative reaction than firms with less extensive disclosures this result suggests that investors interpreted such disclosures as a positive sign of the firm managing its exposure to future regulatory costs

asset pricing puzzles and incomplete markets the representative agent theory of asset pricing is modified to incorporate heterogeneous agents and incomplete markets the model features two types of agents who differ up to a nontradable idiosyncratic component in their endowment processes numerical solutions indicate that individuals are able to diversify a substantial portion of their idiosyncratic income risk through riskless borrowing and lending alone restrictions on the variability of intertemporal marginal rates of substitution hansen and jagannathan 1991 are used to argue that incomplete markets as modeled here cannot account for the properties of asset returns that are anomalous from the perspective of representative agent theory a large literature in financial economics has investigated the extent to which variants of the lucas 1978 general equilibrium theory of asset pricing can account for the joint behavior of aggregate u s consumption and asset returns by and large this literature has concluded that a theory based upon frictionless arrow debreu markets and or a representative agent makes strongly counterfactual predictions regarding even the simple unconditional properties of this relationship mehra and prescott 1985 for instance show that the theory drastically underpredicts the average excess rate of return on u s stocks the so called equity premium puzzle weil 1989 points out as did mehra and prescott that the magnitude of the average risk free rate is far below that predicted by the theory this has been dubbed the risk free rate puzzle numerous authors including grossman melino and shiller 1987 and backus gregory and zin 1989 show that the theory cannot account for term premia inherent in the yield curve hodrick 1987 surveys a large literature which documents the theory s shortcomings in accounting for excess expected returns in foreign exchange markets the notion that the representative agent model cannot account for excess returns across a wide array of asset markets can be made more precise by using tools developed by hansen and jagannathan 1991 and shiller 1982

the merit order effect a detailed analysis of the price effect of renewable electricity generation on spot market prices in germany the german feed in support of electricity generation from renewable energy sources has led to high growth rates of the supported technologies critics state that the costs for consumers are too high an important aspect to be considered in the discussion is the price effect created by renewable electricity generation this paper seeks to analyse the impact of privileged renewable electricity generation on the electricity market in germany the central aspect to be analysed is the impact of renewable electricity generation on spot market prices the results generated by an agent based simulation platform indicate that the financial volume of the price reduction is considerable in the short run this gives rise to a distributional effect which creates savings for the demand side by reducing generator profits in the case of the year 2006 the volume of the merit order effect exceeds the volume of the net support payments for renewable electricity generation which have to be paid by consumers

from voluntarism to regulation a study on ownership economic performance and corporate environmental information disclosure in china this article examines whether economic performance could affect eid and how the relationship is determined by the form of ownership from voluntarism to regulation under the current chinese context in this study our empirical results show that the relationship between firms performance and eid is complex and the interactive impact of ownership and economic performance on eid significantly varies from voluntary disclosure to mandatory disclosure this study provides a more comprehensive understanding of the motivations in corporate eid the performance impression theory can be used to explain the disclosure behaviors during the period of voluntary disclosure while the pressure legitimacy theory can be used during the period of mandatory disclosure the finding suggests that when evaluating corporate eid associated with economic performance in emerging economies such as china it needs to be cautious as which tends to vary with the form of ownership and whether there is any mandatory regulation in place

the market value of variable renewables the effect of solar wind power variability on their relative price this paper provides a comprehensive discussion of the market value of variable renewable energy vre the inherent variability of wind speeds and solar radiation affects the price that vre generators receive on the market market value during windy and sunny times the additional electricity supply reduces the prices because the drop is larger with more installed capacity the market value of vre falls with higher penetration rate this study aims to develop a better understanding on how the market value with penetration and how policies and prices affect the market value quantitative evidence is derived from a review of published studies regression analysis of market data and the calibrated model of the european electricity market emma we find the value of wind power to fall from 110 of the average power price to 50 80 as wind penetration increases from zero to 30 of total electricity consumption for solar power similarly low value levels are reached already at 15 penetration hence competitive large scale renewable deployment will be more difficult to accomplish than as many anticipate

nontraded assets in incomplete markets pricing and portfolio choice this paper examines portfolio choice and asset pricing when some assets are nontraded for instance when a country cannot trade claims to its output on world capital markets when a government cann

an ex post analysis of the effect of renewables and cogeneration on spanish electricity prices abstract growing concerns about climate change and energy dependence are driving specific policies to support renewable or more efficient energy sources such as cogeneration in many regions particularly in the production of electricity these policies have a non negligible cost and therefore a careful assessment of their impacts seems necessary in particular one of the most debated impacts is their effect on electricity prices for which there have been some ex ante studies but few ex post studies this article presents a full ex post empirical analysis by looking at use of technologies and hourly electricity prices for 2005 2009 in spain to study the effects that the introduction of renewable electricity and cogeneration has had on wholesale electricity prices it is particularly interesting to perform this study in spain where an active system of public support to renewables and cogeneration has led to a considerable expansion of these energy sources and electricity pricing is at the center of intense debate the paper reports that a marginal increase of 1 gwh of electricity production using renewables and cogeneration is associated with a reduction of almost 2 per mwh in electricity prices around 4 of the average price for the analyzed period

whether top executives turnover influences environmental responsibility from the perspective of environmental information disclosure we have empirically examined the relationship between top executives turnover and the corporate environmental responsibility by identifying the influence of ten specific turnover reasons resulting in the chairman s departure and two important types of chairman s succession using a sample of 782 manufacturing listed companies across 3 years in china we find that the corporate environmental responsibility is negatively associated with the involuntary and negative turnover i e dismissal health and death and forced resignation and positively associated with improving corporate governance and not associated with the normal turnover i e retirement and contract expiration and the types of chairman s succession i e independence and internal or external promotion our study significantly contributes to research in environmental disclosure by revealing the relationship between chairman s turnover and the corporate environmental responsibility a feasible way is suggested to regulators and other stakeholders in monitoring or assessing the possible abnormality of environmental responsibility when firms experience involuntary and negative chairman s turnover in the emerging economies

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

explicit solutions to an optimal portfolio choice problem with stochastic income abstract this paper solves in closed form the optimal portfolio choice problem for an investor with negative exponential utility over terminal wealth facing imperfectly hedgeable stochastic income the returns on income and the stock are imperfectly correlated so the market is incomplete we identify how an investor adjusts their merton rev econ statist 51 1969 247 portfolio of the stock and riskless asset via an intertemporal hedging demand in reaction to the stochastic income under general assumptions on the process governing the income the sign of the hedging demand is the opposite of the sign of the correlation between the income and stock the optimal portfolio in the stock is long stock if the risk premium is positive and correlation negative and short if these signs are reversed specializing in turn to normally distributed income and lognormally distributed income with or without mean reversion the effect of a number of parameters on the optimal portfolio in the stock can be studied when the risk premium on the stock and correlation have opposite signs the optimal portfolio decreases in magnitude with risk aversion unhedgeable variance of income and time and increases in magnitude with the magnitude of correlation under both the lognormal without mean reversion and normal models for income these relationships do not necessarily hold if the signs on the risk premium and correlation are the same in particular the optimal portfolio is not necessarily monotone in risk aversion violating well known static results in models without income when income follows a lognormal model with mean reversion more complicated behavior can occur for instance the optimal portfolio does not have to be monotonic in time regardless of the signs of correlation and the risk premium

the intra industry effect of corporate environmental violation an exploratory study abstract regenerative sustainability at firm level is a matter of proactive corporate environmental strategy to prevent firms from committing environmental misconducts which not only do harm to the ecological environment but also arouse negative reactions from stakeholders drawing on signaling theory this study explores the intra industry effect of corporate environmental violations of chinese listed companies we propose that the environmental violation announcement carries predominantly negative information regarding rival firms and thus the stock market reacts negatively not only to the firms who commit environmental violations but also to rival firms empirical results corroborate the intra industry contagion effect for rival firms whose cash flow characteristics are similar to those of the violating firm and also reveal that official disclosure of environmental violations committed by a state owned enterprise soe inflicts an additional adverse effect on rival soes to some extent additionally the intra industry effect is shown to be more profound in non environmentally sensitive industries finally the stock market is found to be more sensitive to environmental violations occurring within final goods industries than intermediate goods industries

when can life cycle investors benefit from time varying bond risk premia we study the importance of time varying bond risk premia in a consumption and portfolio choice problem for a life cycle investor facing short sales and borrowing constraints tilts in the optimal asset allocation in response to changes in bond risk premia exhibit pronounced life cycle patterns we find that the investor is willing to pay an annual fee up to 1 to implement a strategy that optimally conditions on prevailing bond risk premia in addition to her age and wealth to solve our model we extend recently developed simulation based techniques to life cycle problems featuring multiple state variables and multiple risky assets

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

the importance of the number of different agents in a heterogeneous asset pricing model abstract models with heterogeneous agents and incomplete markets often only have two types of agents to limit the computational complexity the question arises whether equilibrium models with a realistic number of types have the same implications as models with a small number of types in the asset pricing model considered in this paper several properties depend crucially on the number of types for example in the economy with only two types interest rates respond to idiosyncratic income shocks which makes it easier to smooth consumption moreover these effects can be so strong that it is possible that a relaxation of the borrowing constraint reduces an agent s utility average interest rates on the other hand are not very sensitive to the number of types