stochastic equilibria existence spanning number and the no expected financial gain from trade hypothesis stochastic equilibria under uncertainty with continuous time security trading and consumption are demonstrated in a general setting a common question is whether the current price of a security is an unbiased predictor of the future price of the security plus intermediate dividends this is the hypothesis of no expected financial gains from trade the relevance of this hypothesis in multi good economies is called into question by the following demonstrated fact for each set of probability assessments there exists a corresponding equilibrium one with the original agents original equilibrium allocations and no expected financial gains from trade under the given probability assessments the spanning number of the economy is defined as the fewest number of security markets required to sustain a complete markets equilibrium in a dynamic sense made precise in the paper the spanning number is linked directly to agent primitives in particular the manner in which new information resolves uncertainty over time the spanning number is shown to be invariant under bounded changes in expectations several examples are given in which the spanning number is finite even though the number of potential states of the world is infinite

performance evaluation of optimized portfolio insurance strategies abstract we use s p 500 index return data for the time period 1985 2013 to evaluate the performance of portfolio insurance strategies we shed light on the question if the performance of a constant proportion portfolio insurance cppi strategy can be improved by means of a time varying multiplier which depends on the estimated future volatility neglecting any inter temporal hedging demand the theoretical foundation of the strategies is given by maximizing the expected utility of a hara investor in a diffusion model setup if the risk premium is assumed to be proportional to the variance the optimal strategy is a cppi strategy otherwise the multiple is time varying ppi it turns out that even time varying multiple strategies based on a rolling window of historical volatility estimates give a significant improvement of cppi strategies the out performance is robust w r t alternative performance measures and is also true for proportional transaction costs and adequate trigger trading

the impact of large portfolio insurers on asset prices we develop a simple model in which the presence of portfolio insurers in a market of risk averse traders leads to multiple equilibria for the pricing of financial assets and can cause an increase in volatility including insurance induced price drops we demonstrate however that centralized portfolio insurance firms may actually reduce not increase volatility even if the existence of these firms increases the total amount of funds under insurance a portfolio insurer typically sells equity as stock prices fall in order to limit the losses from holding equity in a declining market and buys equity as prices rise this can be accomplished directly by switching between stocks and cash or indirectly by taking a position in derivative securities whose payoffs are tied to stock market performance 1 the general effects of such dynamic hedging strategies have been studied by authors such as grossman 1988 brennan and schwartz 1989 and gennotte and leland 1990 gammill and marsh 1988 shiller 1989 jacklin kleidon and pfleiderer 1992 and others have studied the role of portfolio insurance in the crash of 1987 since these papers do not differentiate between an economy in which a group of atomistic investors follow their own individual insurance strategies and an economy in which large portfolio insurance firms act on behalf of investors who wish to insure however the specific price effects of large portfolio insurance firms are yet to be investigated this is the purpose of our paper section i develops a rudimentary asset pricing model with two types of traders atomistic portfolio insurers and atomistic ordinary traders this model is essentially a simplified version of gennotte and leland 1990 in which we focus on the stop loss basics of portfolio insurance like gennotte and leland we demonstrate that the existence of atomistic portfolio insurers increases the variance of possible equilibrium prices i e volatility and can lead to situations in which there are many potential equilibrium prices for a single set of fundamentals section ii extends the model by allowing some

portfolio insurance in complete markets a note this note presents an elementary derivation of the optimal investment strategy of an investor who wants to assure that his investment in risky assets does not lead his wealth to fall below a predetermined floor copyright 1989 by the university of chicago

fostering change to sustainable consumption and production an evidence based view this note from the field is an edited version of a policy brief summarizing the key findings from the first half of the sustainable consumption research exchange network score for the policy programs in the field of sustainable consumption and production scp we recommend a framework for action to change to scp that mentions the key domains to include food mobility and energy use housing the last two clearly related to urban development it should use a systemic perspective on the scp challenge and differentiate between developed fast developing and base of the pyramid economies score focuses mainly on developed economies and here we propose to differentiate between 1 measures that fit with mainstream beliefs and paradigms here governments could make operational agreements on implementation of instruments like green public procurement stimulating ecodesign etc 2 problems where a rough agreement on goals exists but where change is radical or means are uncertain and hence planning difficult here governments could foster visioning experimentation and support e g international collaboration in leapfrogging programs 3 problems that outright clash with the mainstream beliefs and paradigms here governments could foster informed deliberation on the more fundamental issues related to markets governance and growth 2007 elsevier ltd all rights reserved

consumer forecast revisions is information really so sticky abstract previous studies using consumer survey data on inflation expectations find that consumers revise their inflation forecasts approximately once every eight months suggesting that information is quite sticky however in the consumer survey data analyzed respondents take the survey twice with a six month gap and responses are reported to the nearest integer both the low frequency and the rounding result in overestimation of information stickiness higher frequency unrounded data reveals that consumers revise their inflation expectations far more frequently about five times in an eight month period

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

a general equilibrium model of portfolio insurance this article examines the effects of portfolio insurance on market and asset price dynamics in a general equilibrium continuous time model portfolio insurers are modeled as expected utility maximizing agents martingale methods are employed in solving the individual agents dynamic consumption portfolio problems comparisons are made between the optimal consumption processes optimally invested wealth and portfolio strategies of the portfolio insurers and normal agents at a general equilibrium level comparisons across economies reveal that the market volatility and risk premium are decreased and the asset and market price levels increased by the presence of portfolio insurance article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a model of credit risk optimal policies and asset prices this article studies an economy with borrowers firms or individuals under costly default borrowers defaulting under adverse economic conditions may despite incurring default costs emerge as wealthier than nonborrowers asset substitution is generally not pronounced although a larger risk exposure by borrowers may also occur and then binary options emerge as useful credit derivatives the asset value dynamics are endogenously determined and shown to exhibit stochastic mean and volatility in contrast to many credit risk models in equilibrium the market level is increased decreased in economic downturns upturns by the presence of credit risk

information rigidity and the expectations formation process a simple framework and new facts we propose a new approach to test the full information rational expectations hypothesis which can identify whether rejections of the null arise from irrationality or limited information this approach quantifies the economic significance of departures from the null by quantifying the underlying degree of information rigidity applying this approach to u s and international data of professional forecasters and other agents yields pervasive evidence consistent with models of imperfect information furthermore the proposed approach sheds new light on policies such as inflation targeting and those leading to the great moderation affecting expectations finally we document evidence of state dependence in the expectations formation process

sustainable consumption and production governance in countries in transition abstract unsustainable consumption and production patterns have brought human civilization to the brink of a global disaster alteration of these patterns to minimize adverse environmental impacts has become the key question of survival a question relevant for every country and citizen in this paper we are looking at trends of consumption and production in the post soviet republics these countries have a common history but they took different routes to development they are at different stages of economic growth and political processes with differences also in consumption and production related environmental pressures and policies this study is based on statistical data analysis and snap shot surveys of national experts from non governmental organizations reflecting their views and observations which often differ from official positions of national governments and international organizations in order to draw conclusions about the possibilities for further development we analyze various sustainable consumption and production indicators policy developments progress achieved and the main challenges behind sustainable consumption and production governance in these countries sustainable consumption and production policy in the countries of the region is fragmented and none of the countries uses a holistic integrated approach the influence of the eu seems to be critical for advancing sustainable development principles however the eu accession does not address the growth effect which is the main driver behind increasing environmental pressures related to consumption there is still a long way to go from this mosaic of policy elements to a coherent policy with adequate institutional support and funding mechanisms

replicating options with positions in stock and cash in most situations of practical relevance the price behavior of a call option is very similar to a combined position involving the underlying stock and borrowing the call price and the stock price will change in the same direction the effect on the call price of a one dollar change in the stock price however will depend on the current price of the stock the number of shares of stock in the replicating portfolio must equal the slope of the call price curve at that price when the call is deep out of the money i e when the stock price is much lower than the striking price a one dollar change in the stock price has little effect on the call price when the stock price is equal to the striking price a one dollar change in the stock price produces roughly a half dollar change in the call price if the stock price rises until the call is deep in the money a one dollar move in the stock price results in nearly a one dollar move in the call price because the call price behaves this way we must revise

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

portfolio choice and trading volume with loss averse investors this paper presents a model of portfolio choice and stock trading volume with lossaverse investors the demand function for risky assets is discontinuous and non monotonic as wealth rises beyond a threshold investors follow a generalized portfolio insurance strategy this behavior is consistent with the evidence in favor of the disposition effect in addition loss averse investors will not hold stocks unless the equity premium is quite high the elasticity of the aggregate demand curve changes substantially depending on the distribution of wealth across investors in an equilibrium setting the model generates positive correlation between trading volume and stock return volatility but suggests that this relationship should be non linear

effectiveness of cppi strategies under discrete time trading abstract the paper analyzes the effectiveness of the constant proportion portfolio insurance cppi method under trading restrictions if the cppi method is applied in continuous time the cppi strategies provide a value above a floor level unless the price dynamics of the risky asset permit jumps the risk of violating the floor protection is called gap risk in practice it is caused by liquidity constraints and price jumps both can be modelled in a setup where the price dynamics of the risky asset are described by a continuous time stochastic process but trading is restricted to discrete time we propose a discrete time version of the continuous time cppi strategies which satisfies three conditions the resulting strategies are self financing the asset exposure is non negative and the value process converges we determine risk measures such as the shortfall probability and the expected shortfall and discuss criteria which ensure that the gap risk does not increase to a level which contradicts the original intention of portfolio insurance in addition we introduce proportional transaction costs and analyze their effects on the risk profile

strong sustainable consumption governance precondition for a degrowth path this paper aims to link two debates and literatures at the cutting edge of sustainable development research and governance sustainable consumption and degrowth interestingly these literatures have only recently started to exchange and integrate insights despite their similar interest in the fundamental systemic challenges to sustainable development the paper argues that this lack of connection is due to a predominance of perspectives in sustainable consumption governance that focus almost exclusively on questions of efficiency gains this weak sustainable consumption governance however is not able to address the challenges to sustainable development arising from overconsumption in general or the rebound effect and distributive issues in particular in contrast a strong sustainable consumption perspective provides a basis for a promising inquiry into the linkages between consumption and sustainable development as well as a fruitful exchange with degrowth specifically it allows the delineation of relevant insights on the role of values in governance obstacles to political reform and promising political strategies for the degrowth debate and literature

an analysis of the implications for stock and futures price volatility of program trading and dynamic hedging strategies the notion that a real security is redundant when it can be synthesized by a dynamic trading strategy ignores the informati onal role of real securities markets portfolio insurance uses a dyna mic strategy to synthesize a european put the absence of trading in an appropriate real put option prevents the transmittal of informatio n to market participants about the future price volatility associated with current dynamic hedging strategies less information is transmi tted to potential liquidity providers it will therefore be more di fficult for the market to absorb the trades implied by the dynamic he dging strategies and the stocks future price volatility will rise copyright 1988 by the university of chicago

the consumption based capital asset pricing model the paper provides conditions on the primitives of a continuous time economy under which there exist equilibria obeying the consumption based capital asset pricing model ccapm the paper also extends the equilibrium characterization of interest rates of cox ingersoll and ross 1985 to multi agent economies we do not use a markovian state assumption this work provides sufficient conditions on agents primitives for the validity of the consumption based capital asset pricing model ccapm of breeden 1979 as a necessary condition breeden showed that in a continuous time equilibrium satisfying certain regularity conditions one can characterize returns on securities as follows the expected instantaneous rate of return on any security in excess of the riskless interest rate the security s expected excess rate of return is a multiple common to all securities of the instantaneous covariance of this excess return with aggregate consumption increments this common multiple is the arrow pratt measure of risk aversion of a representative agent rubinstein 1976 published a discrete time precursor of this result the exis tence of equilibria satisfying breeden s regularity conditions had been an open issue we also show that the validity of the ccapm does not depend on breeden s assumption of markov state information and present a general asset pricing model extending the results of cox ingersoll and ross 1985 as well as the discrete time results of rubinstein 1976 and lucas 1978 to a multi agent environment since the ccapm was first proposed much effort has been directed at finding sufficient conditions on the model primitives the given assets the agents preferences the agents consumption endowments and in a production econ omy the feasible production sets conditions sufficient for the existence of continuous time equilibria were shown in duffie 1986 but the equilibria demonstrated were not shown to satisfy the additional regularity required for the ccapm in particular breeden assumed that all agents choose pointwise interior consumption rates in order to characterize asset prices via the first order conditions of the bellman equation interiority was also assumed by huang 1987 in demonstrating a representative agent characterization of equilibrium an approach exploited here the use of dynamic programming and the bellman equation aside from the difficulty it imposes in verifying the existence of interior 1 financial support from the national science foundation is gratefully acknowledged we thank

a dynamic autoregressive expectile for time invariant portfolio protection strategies constant proportion portfolio insurance cppi is nowadays one of the most popular techniques for portfolio insurance strategies it simply consists of reallocating the risky part of a portfolio with respect to market conditions via a leverage parameter called the multiple guaranteeing a predetermined floor we propose to introduce a conditional time varying multiple as an alternative to the standard unconditional cppi method directly linked to actual risk management problematics this ex ante approach for the conditional multiple aims to diversify the risk model associated for example with the expected shortfall es or extreme risk measure estimations first we recall the portfolio insurance principles and main properties of the cppi strategy including the time invariant portfolio protection tipp strategy as introduced by estep and kritzman 1988 we emphasize the existence of an upper bound on the multiple for example to hedge against sudden drops in the market then we provide the main properties of the conditional multiples for well known financial models including the discrete time portfolio rebalancing case and levy processes to describe the risky asset dynamics for this purpose we precisely define and evaluate different gap risks in both conditional and unconditional frameworks as a by product the introduction of discrete or random time portfolio rebalancing allows us to determine and or estimate the density of durations between rebalancements finally from a more practical and statistical point of view due to trading restrictions we present the class of dynamic autoregressive expectile dare models for estimating the conditional multiple this latter approach provides useful complementary information about the risk and performance associated with probabilistic approaches to the conditional multiple

comparative dynamics of an equilibrium intertemporal asset pricing model this paper uses recursive competitive theory to develop a general equilibrium asset pricing model in this framework all prices and rates of return are endogenously determined thus enabling us to analyze the effects of changes in preferences technological uncertainty and expectations on the structure of security prices in particular we focus on how the market risk premium varies with changes in the underlying economic environment an issue which other asset pricing models have chosen not to address

a comparative study of portfolio insurance abstract this paper undertakes a comparative study of portfolio insurance under a variety of modeling strategies specifically we focus on portfolio insurers who derive utility from horizon wealth with marginal utility tending smoothly to infinity at some pre specified floor we solve for the optimal consumption portfolio wealth of these portfolio insurers and compare with constrained portfolio insurers and normal agents general equilibrium conditions are contrasted under pure exchange and production type models while the market price level is unambiguously increased under pure exchange under production the effect on market level is state dependent in both models the market volatility and risk premium are decreased by portfolio insurance the paper also investigates the possible relationship between portfolio insurance type trading strategies and market volatility

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

the nordhaus test with many zeros abstract we reformulate the nordhaus test as a friction model where the large number of zero revisions are treated as censored i e unknown values inside a small region of imperceptibility using blue chip individual forecasts of u s real gdp growth inflation and unemployment over 1985 2020 we find pervasive over reaction to news at most of the monthly forecast horizons from 24 to 1 but the degree of inefficiency is very small the updaters i e those who make non zero revisions are not found to perform better than their inattentive peers

updating inflation expectations evidence from micro data utilizing the michigan household consumer survey s rotating panel microstructure we can identify if individuals have adjusted their expectations towards inflation this allows us to directly capture the updating behavior of individual consumers regarding their short and long run inflation expectations

getgreen vietnam towards more sustainable behaviour among the urban middle class abstract in vietnam the middle class is expected to grow from 12 million to 33 million people between 2012 and 2020 the growth causes an increase as well as a shift in consumption products that were not accessible or affordable before will become increasingly so such as cars dishwashers meat products and air conditioning in urban areas the changes are most prominent and so are the side effects increased amounts of waste smog pollution and use of fossil energy or pesticides the main objective of this study was to identify sustainable behaviour that followed or did not follow from the intervention project getgreen vietnam 604 urban middle class consumers participated in a series of sustainable consumption trainings before during and after the trainings quantitative and qualitative data was collected on 90 sustainable actions 64 of the participants self reported to be engaged in a sustainable action before the intervention and this percentage increased to 80 after the group environment and activity based meetings of getgreen vietnam project ggvn were critical for the success of the intervention participants reported that before ggvn certain actions were already habitual as a money saving strategy e g sparse electricity use or food leftovers re use or due to past scarcity e g sparse water use many participants reported the intention to buy sustainable products but fewer participants took action to do so a powerful strategy toward more sustainable consumption in vietnam can be to create more group based activities around the themes of energy and shopping for food a twofold approach is needed that both installs new sustainable consumption patterns and keeps old habits rooted in daily rituals role models should set an example for the young population and consumers and vietnamese producers should be better connected to increase mutual trust and transparency

an intertemporal general equilibrium asset pricing model the case of diffusion information this paper provides sufficient conditions for the equilibrium price system and a vector of exogenously specified state variable processes to form a diffusion process in a pure exchange economy the conditions involve smoothness of agents utility functions and certain nice properties of the aggregate endowment process and the dividend processes of traded assets in place of the dynamic programming a martingale representation technique is utilized to characterize equilibrium portfolio policies this technique is useful even when there does not exist a finite dimensional markov structure in the economy and thus the markovian stochastic dynamic programming is not applicable a gents are shown to hold certain hedging mutual funds and the riskless asset in contrast to earlier results the market portfolio does not have a special role in hedging since the markets are dynamically complete when there exists a finite dimensional markov system in the economy the dimension of the hedging demand identified through the markovian dynamic programming may be much larger than that identified by the martingale method copyright 1987 by the econometric society

equilibrium analysis of portfolio insurance a martingale approach is used to characterize general equilibrium in the presence of portfolio insurance insurers sell to noninsurers in bad states and general equilibrium requires that the risk premium rises to induce noninsurers to increase their holdings we show that portfolio insurance increases price volatility causes mean reversion in asset returns raises the sharpe ratio and volatility in bad states and causes volatility to be correlated with volume we also explain why out of the money sp that is the demand for an absolute level of price protection is equivalent to a demand for put options 1 we show that a similar argument can be used in a

when are gdp forecasts updated evidence from a large international panel based on a large international panel of surveyed gdp forecasts i analyze the frequency of forecast revisions and the factors that influence the likelihood of forecast revisions i find that each month on average 40 50 of forecasters revise their forecasts in addition i find that the likelihood of forecast revisions significantly depends on a number of factors such as the forecast horizon the business cycle or strategic interactions between forecasters my results suggest that a realistic modeling of expectations forecasts of agents has to take into account cross sectional heterogeneity strategic interaction between agents and effects of the economic environment features that existing models such as the sticky information framework are missing

theory of constant proportion portfolio insurance abstract we study constant proportion portfolio insurance cppi a dynamic strategy that maintains the portfolio s risk exposure a constant multiple of the excess of wealth over a floor up to a borrowing limit we use this simple rule to investigate how transaction costs and borrowing constraints affect portfolio insurance type strategies absent transaction costs cppi is equivalent to investing in perpetual american call options and is optimal for a piecewise hara utility function with a minimum consumption constraint as the multiple increases the payoffs under cppi approach those of a stop loss strategy the expected holding period return is not monotonic in the multiple and a higher expected return can be obtained under cppi than with a stop loss strategy

taking the u out of kuznets a comprehensive analysis of the ekc and environmental degradation unlike most environmental kuznets curve ekc studies which focus on narrow measures of pollution as proxies for environmental quality we test the validity of the ekc using the ecological footprint ef a more comprehensive measure of environmental degradation we find no empirical evidence of an ekc relationship between the ef and economic development and only limited support for such a relationship among the components of the ef in addition we discover that energy is largely responsible for the lack of an ekc relationship and that energy consumption levels would have to be cut by over 50 in order for a statistically significant ekc relationship to emerge from the data overall these results suggest that growth alone will not lead to sustainable development

sustainability meta labelling an effective measure to facilitate more sustainable consumption and production abstract arguably one of the most prominent measures to facilitate more sustainable consumption and production has been the instrument of product labelling but with a plethora of labelling schemes having been implemented by various actors over the last decade many now accuse them of being confusing rather than facilitating as a result governments in france uk and germany as well as businesses such as walmart and non governmental organisations like wwf have begun to consider seriously the implementation of some form of meta scheme that condenses existing product labels and other communication measures into an overarching sustainability message yet so far in depth studies on the potential institutionalisation of a sustainability meta labelling scheme are missing drawing upon a novel theoretically integrative framework that combines theoretical arguments of constructivist institutionalism and institutional entrepreneurship with the concept of legitimacy this paper addresses this gap by exploring how the notion of sustainability meta labelling has so far been discussed and investigating the prospects for such an overarching scheme to become institutionalised empirically the paper bases on documentary analysis and elite interviews focussed on case studies of four existing product labelling schemes eu ecolabel eu energy label marine stewardship council and fairtrade label as well as the notion of sustainability meta labelling legitimacy constructions are demonstrated rather than shown to be highly dynamic and oftentimes inherently conflicting many of these conflicts thereby appear to be likely to increase rather than decrease with the implementation of an overarching sustainability meta labelling scheme in a sense this study shows that the very issue that is claimed to drive the establishment of a sustainability meta labelling scheme the different interpretations of the sustainable development concept through different product labels might in fact pose one of the main challenges for its institutionalisation and effectiveness in facilitating more sustainable consumption and production

a consumption based approach to environmental kuznets curves using the ecological footprint indicator recent research suggests that consumption based measures offer an insightful perspective on the debate on the relationship between economic growth and the environment in this article we deepen the

portfolio selection with consumption ratcheting abstract in this paper we study the portfolio selection problem of a finite lived agent who does not tolerate a decline in standard of living the preference can be regarded as exhibiting extreme form of habit formation and also related to loss aversion in the prospect theory we show that the agent s optimal portfolio exhibits a trend chasing behavior and the portfolio share of the risky asset fluctuates between 0 and the value of an unconstrained individual the fluctuations do not attenuate as time gets near the end of the planning horizon we also explore implications of the model for asset pricing and show that the model has a potential to match better the recent us data than traditional habit models we provide a complete solution to the problem by considering a transformed problem which is similar in its formal structure to an irreversible incremental investment problem and equivalent to an infinite series of optimal stopping problems

updates to household inflation expectations signal or noise abstract using data from the new york fed s survey of consumer expectations we examine the information content of the updates to household inflation expectations we find that although consumers frequently revise their expectations the adjustments are largely uninformative

news on inflation and the epidemiology of inflation expectations this paper examines the nexus between news coverage on inflation and households inflation expectations in doing so we test the epidemiological foundations of the sticky information model carroll 2003 2006 we use both aggregate and household level data from the survey research center at the university of michigan we highlight a fundamental disconnection among news on inflation consumers frequency of expectation updating and the accuracy of their expectations our evidence provides at best weak support to the epidemiological framework as most of the consumers who update their expectations do not revise them toward professional forecasters mean forecast