File Download
Supplementary

postgraduate thesis: Incomplete information and macro-finance

TitleIncomplete information and macro-finance
Authors
Advisors
Advisor(s):Luo, Y
Issue Date2017
PublisherThe University of Hong Kong (Pokfulam, Hong Kong)
Citation
Shi, Q. [施青]. (2017). Incomplete information and macro-finance. (Thesis). University of Hong Kong, Pokfulam, Hong Kong SAR.
AbstractThis paper provides a tractable stochastic differential utility (SDU) – Gaussian framework with constant-absolute-risk atemporal averse (CARA) to theoretically and quantitatively explore how the interactions of intertemporal substitution, atemporal risk aversion, and induced uncertainty due to the preference for robustness (RB) and rational inattention (RI) affect agent’s optimal consumption-portfolio choice and precautionary savings. Specifically, the derived analytically optimal solution shows two important points: (i) induced uncertainty increases precautionary savings and reduces amount invested in risky assets; and (ii) intertemporal substitution attitude, which is now disentangled with atemporal risk aversion, also affects agent’s precautionary savings and portfolio allocation decisions, with the direction depending on the relative value of risk-free interest rate and subjective discount factor. Furthermore, we analytically investigate how induced uncertainty and SDU affects the risk-free rate, the risk premium, and the relative volatility of consumption growth to income growth in general equilibrium. First, it is found that the presence of SDU can reduce the co-movement of the risk premium and and the risk-free rate. Therefore, the high equity premium can be consistent with the low risk-free rate in general equilibrium. Second, we show that induced uncertainty due to RI and RB reduces the risk-free rate, increases the risk premium and decreases the relative volatility of consumption to income in equilibrium. Finally, after calibrating and estimation using PSID, we show that our model can generate the realistic risk-free rate, the equity premium, and the relative volatility of consumption to income which match their empirical counterpart quite well, with plausible parameter values.
DegreeDoctor of Philosophy
SubjectUtility theory - Mathematical models
Uncertainty - Mathematical models
Risk - Mathematical models
Saving and investment - Mathematical models
Dept/ProgramEconomics and Finance
Persistent Identifierhttp://hdl.handle.net/10722/249812

 

DC FieldValueLanguage
dc.contributor.advisorLuo, Y-
dc.contributor.authorShi, Qing-
dc.contributor.author施青-
dc.date.accessioned2017-12-19T09:27:23Z-
dc.date.available2017-12-19T09:27:23Z-
dc.date.issued2017-
dc.identifier.citationShi, Q. [施青]. (2017). Incomplete information and macro-finance. (Thesis). University of Hong Kong, Pokfulam, Hong Kong SAR.-
dc.identifier.urihttp://hdl.handle.net/10722/249812-
dc.description.abstractThis paper provides a tractable stochastic differential utility (SDU) – Gaussian framework with constant-absolute-risk atemporal averse (CARA) to theoretically and quantitatively explore how the interactions of intertemporal substitution, atemporal risk aversion, and induced uncertainty due to the preference for robustness (RB) and rational inattention (RI) affect agent’s optimal consumption-portfolio choice and precautionary savings. Specifically, the derived analytically optimal solution shows two important points: (i) induced uncertainty increases precautionary savings and reduces amount invested in risky assets; and (ii) intertemporal substitution attitude, which is now disentangled with atemporal risk aversion, also affects agent’s precautionary savings and portfolio allocation decisions, with the direction depending on the relative value of risk-free interest rate and subjective discount factor. Furthermore, we analytically investigate how induced uncertainty and SDU affects the risk-free rate, the risk premium, and the relative volatility of consumption growth to income growth in general equilibrium. First, it is found that the presence of SDU can reduce the co-movement of the risk premium and and the risk-free rate. Therefore, the high equity premium can be consistent with the low risk-free rate in general equilibrium. Second, we show that induced uncertainty due to RI and RB reduces the risk-free rate, increases the risk premium and decreases the relative volatility of consumption to income in equilibrium. Finally, after calibrating and estimation using PSID, we show that our model can generate the realistic risk-free rate, the equity premium, and the relative volatility of consumption to income which match their empirical counterpart quite well, with plausible parameter values.-
dc.languageeng-
dc.publisherThe University of Hong Kong (Pokfulam, Hong Kong)-
dc.relation.ispartofHKU Theses Online (HKUTO)-
dc.rightsThe author retains all proprietary rights, (such as patent rights) and the right to use in future works.-
dc.rightsThis work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.-
dc.subject.lcshUtility theory - Mathematical models-
dc.subject.lcshUncertainty - Mathematical models-
dc.subject.lcshRisk - Mathematical models-
dc.subject.lcshSaving and investment - Mathematical models-
dc.titleIncomplete information and macro-finance-
dc.typePG_Thesis-
dc.description.thesisnameDoctor of Philosophy-
dc.description.thesislevelDoctoral-
dc.description.thesisdisciplineEconomics and Finance-
dc.description.naturepublished_or_final_version-
dc.date.hkucongregation2017-
dc.identifier.mmsid991043976391003414-

Export via OAI-PMH Interface in XML Formats


OR


Export to Other Non-XML Formats