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Article: Robustly Strategic Consumption–Portfolio Rules with Informational Frictions

TitleRobustly Strategic Consumption–Portfolio Rules with Informational Frictions
Authors
KeywordsModel uncertainty
Precautionary savings
Rational inattention
Robustness
Strategic asset allocation
Uninsurable labor income
Issue Date2017
PublisherINFORMS. The Journal's web site is located at http://mansci.pubs.informs.org
Citation
Management Science, 2017, v. 63 n. 12, p. 3999-4446 How to Cite?
AbstractThis paper provides a tractable continuous-time, constant absolute risk aversion–Gaussian framework to explore how the interactions of fundamental uncertainty, model uncertainty due to a preference for robustness, and state uncertainty due to information-processing constraints (rational inattention) affect strategic consumption–portfolio rules and precautionary savings in the presence of uninsurable labor income. Specifically, after solving the model explicitly, I compute and compare the elasticities of strategic asset allocation and precautionary savings to risk aversion, robustness, and inattention. Furthermore, for plausibly estimated and calibrated model parameters, I quantitatively analyze how the interactions of model uncertainty and state uncertainty affect the optimal share invested in the risky asset and show that they can provide a potential explanation for the observed stockholding behavior of households with different education and income levels.
Persistent Identifierhttp://hdl.handle.net/10722/236445
ISSN
2023 Impact Factor: 4.6
2023 SCImago Journal Rankings: 5.438
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorLuo, Y-
dc.date.accessioned2016-11-25T00:53:30Z-
dc.date.available2016-11-25T00:53:30Z-
dc.date.issued2017-
dc.identifier.citationManagement Science, 2017, v. 63 n. 12, p. 3999-4446-
dc.identifier.issn0025-1909-
dc.identifier.urihttp://hdl.handle.net/10722/236445-
dc.description.abstractThis paper provides a tractable continuous-time, constant absolute risk aversion–Gaussian framework to explore how the interactions of fundamental uncertainty, model uncertainty due to a preference for robustness, and state uncertainty due to information-processing constraints (rational inattention) affect strategic consumption–portfolio rules and precautionary savings in the presence of uninsurable labor income. Specifically, after solving the model explicitly, I compute and compare the elasticities of strategic asset allocation and precautionary savings to risk aversion, robustness, and inattention. Furthermore, for plausibly estimated and calibrated model parameters, I quantitatively analyze how the interactions of model uncertainty and state uncertainty affect the optimal share invested in the risky asset and show that they can provide a potential explanation for the observed stockholding behavior of households with different education and income levels.-
dc.languageeng-
dc.publisherINFORMS. The Journal's web site is located at http://mansci.pubs.informs.org-
dc.relation.ispartofManagement Science-
dc.subjectModel uncertainty-
dc.subjectPrecautionary savings-
dc.subjectRational inattention-
dc.subjectRobustness-
dc.subjectStrategic asset allocation-
dc.subjectUninsurable labor income-
dc.titleRobustly Strategic Consumption–Portfolio Rules with Informational Frictions-
dc.typeArticle-
dc.identifier.emailLuo, Y: yluo@econ.hku.hk-
dc.identifier.authorityLuo, Y=rp01083-
dc.description.naturepostprint-
dc.identifier.doi10.1287/mnsc.2016.2553-
dc.identifier.scopuseid_2-s2.0-85038882477-
dc.identifier.hkuros270435-
dc.identifier.volume63-
dc.identifier.issue12-
dc.identifier.spage3999-
dc.identifier.epage4446-
dc.identifier.isiWOS:000417712000009-
dc.publisher.placeUnited States-
dc.identifier.issnl0025-1909-

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