The Interaction Between the Demands for Insurance and Insurable Assets

Holding more of the riskless asset and insuring the risky asset are two ways to reduce portfolio risk. These methods can be employed jointly. As a result, the amount of insurance selected to indemnify against possible losses from holding a risky asset depends, in general, on the quantities of the risky and riskless assets held in the portfolio, and vice versa. In decision models where expected utility is maximized, relatively little has been done to integrate these two decisions into a single model. Such a model is formulated in this paper and the interaction between the demand for insurance and the demand for an insurable risky asset is examined.     

RISK AND THE VALUE OF INFORMATION IN IRREVERSIBLE DECISIONS

The analysis of the nexus between the value of information and risk is examined for sequential decisions with different degrees of future commitment, as e.g. environmental decisions. We find that in the linear case a riskier environment in general will increase the value of information. This result will be extended in the separable case to decreasing and increasing stochastic returns to scale. An example shows the ambiguity in the general case.     

Portfolio allocation and asset demand with mean-variance preferences

We analyze the comparative static effects of changes in the means, the standard deviations and the covariance of asset returns in a standard portfolio selection problem when investors have mean variance preferences. Simple and intuitive characterizations in terms of the elasticity of risk aversion are provided.     

Oil prices,stock market returns and volatility spillovers: Evidence from Turkey

This paper examines the relationship between crude oil prices and stock market returns in Turkey taking into account volatility spillovers that are exemplified by second moment effects. Using weekly data from 1990 to 2017 and time varying causality-in-mean and causality-in-variance tests and taking into account structural breaks, we model each series as an EGARCH process in order to capture any leverage effects in the volatility of returns. Empirical results suggest crude oil prices as measured by Brent benchmark have significant effects on stock market returns in Turkey. While we fail to document significant spillover effects stemming from oil prices in the entire sample, there are significant spillover effects from crude oil price changes to stock market returns in 1993 and 2008–09. These results suggest that government policies must take into account risk spillover effects between markets and that investors are better off monitoring crude oil markets in portfolio allocation decisions.     

Demand for risky assets and the monotone probability ratio order

Since Fishburn and Porter (1976), it has been known that a first-order dominant shift in the distribution of random returns of an asset does not necessarily induce a risk-averse decision maker to increase his holdings of that improved asset. To obtain the desired comparative statics result, one has to further restrict the class of changes in the distribution. In this article, we propose the “monotone probability ratio” criterion which is more general than the “monotone likelihood ratio” criterion currently used in the literature.     

The risky business of insurance pricing

The factors influencing insurance pricing decisions are assessed using the ISO product liability ratemaking files for 1980–1984. The mean loss level has a strong positive effect on manual rates and premium rates/exposure. Evidence on a variety of ambiguity measures is more mixed. As a broad generalization, risk ambiguity lowers manual rates, which may reflect exclusion of large loss outliers as being unrepresentative. Risk ambiguity tends to have a positive effect on actual pricing decisions for particular policies, especially bodily injury lines and the interactive risk-ambiguity model.     

The influence of extreme events such as Brexit and Covid-19 on equity markets

In this article first, we show that the result that the PIIGS group had the largest negative unadjusted and abnormal returns on the day following the Brexit Referendum is robust to taking into account jointly other extreme events such as the Covid-19. Second, we provide evidence that the impact of the declaration of Covid-19 to be a global pandemic by the WHO – when global markets fell by nearly 15% – had a total different reaction in the financial markets to the one following the Brexit Referendum, impacting more negatively in countries where quarantine lockdowns were announced that day (i.e. Austria, Belgium, Brazil, Canada, Italy and Spain), independently on their debt-to GDP ratio. We also show that the day after Covid-19 was declared as a global pandemic, China and Japan (countries that already implemented lockdowns in the previous months) were the only analyzed countries that did not experience any evidence of abnormal returns in their financial markets. Moreover, during the three following days, the US was the only analyzed country showing no evidence of negative abnormal returns due to the declaration of the national emergency. These results suggest that government policies must take into account and monitor specially health-related news at global level, since they can have enormous impacts on portfolio allocations on stock markets, in order to take more informed decisions.     

Strategic ambiguity and decision-making: an experimental study

We conducted a set of experiments to compare the effect of ambiguity in single-person decisions and games. Our results suggest that ambiguity has a bigger impact in games than in ball and urn problems. We find that ambiguity has the opposite effect in games of strategic substitutes and complements. This confirms a theoretical prediction made by Eichberger and Kelsey (J Econ Theory 106:436–466, 2002). In addition, we note that subjects’ ambiguity attitudes appear to be context dependent: ambiguity loving in single-person decisions and ambiguity averse in games. This is consistent with the findings of Kelsey and le Roux (Theory Decis 79:667–688, 2015).     

Sampling experience reverses preferences for ambiguity

People often need to choose between alternatives with known probabilities (risk) and alternatives with unknown probabilities (ambiguity). Such decisions are characterized by attitudes towards ambiguity, which are distinct from risk attitudes. Most studies of ambiguity attitudes have focused on the static case of single choice, where decision makers typically prefer risky over ambiguous prospects. However, in many situations, decision makers may be able to sample outcomes of an ambiguous alternative, allowing for inferences about its probabilities. The current paper finds that such sampling experience reverses the pattern of ambiguity attitude observed in the static case. This effect can only partly be explained by the updating of probabilistic beliefs, suggesting a direct effect of sampling on attitudes toward ambiguity.     

Learning-by-doing in an ambiguous environment

How well do revealed ambiguity preferences predict how people choose to seek new information about uncertain events? In an economics experiment, we apply a new instrument to measure ambiguity preferences, and in a later session observe to what extent the measure predicts the choice to receive costly information in a learning-by-doing game. Ambiguity averse subjects are more willing to pay to receive information, while risk averse subjects are not. Holding ambiguity preferences constant, risk averse subjects tend to perform worse than risk loving subjects. The returns to experimentation, especially for ambiguity averse subjects, suggest a not-well studied but important role that ambiguity preferences play in decision-making under uncertainty.     

Ambiguity and risk taking in organizations

Kunreuther, Meszaros, and Hogarth (1993) argue that insurers are risk averse and ambiguity averse, and that they use cognitive reference points and constraints in making pricing decisions. They further claim that insurer ambiguity may be a factor that has a role in market failure at the industry level. Arguably, ambiguity may be an important aspect of decision behavior. In this article, research on managerial risk taking is reviewed with a focus on the relationship between ambiguity and risk taking. In particular, the effects of the organizational and institutional context are highlighted. It is argued that the political aspects of insurer decision behavior should be considered as well. Implications for further study and understanding of decision making are discussed.     

北京郊区农村固定资产投资分析研究

本文分析了北京郊区农村固定资产投资的基本情况,认为尽管近年来北京对郊区农村固定资产投资逐年增加,促进了农村经济的发展和农民生活水平的提高,但还存在着投资比重低、来源单一、区域分布不平衡、用于公共服务设施的比重低等问题,需要进一步加大公共财政投入,调整投资结构,提高资金使用效率,吸引社会资金投入农村。     

Mean utility preserving increases in risk for state dependent utility functions

This paper defines the concept of a mean utility preserving spread across states (MUPSAS) for state dependent utility functions and analyzes the behavioural impact of shifts in the probability distribution of wealth across states such that overall mean utility is preserved. The main result provides an alternative way of ranking state dependent utility functions according to their degree of risk aversion (thus extending Kami's theorem of comparative risk aversion) and establishes a link between increases in risk and risk aversion for state dependent preferences. In a portfolio problem where preferences and the rate of return of the risky venture are state dependent, we find sufficient conditions to determine the impact of a MUPSAS on the optimal share of the portfolio invested in the risky asset.

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How Do Information Ambiguity and Timing of Contextual Information Affect Managers’ Goal Congruence in Making Investment Decisions in Good Times vs. Bad Times?

Information ambiguity is prevalent in organizations and may influence management decisions. This study draws upon research on information bias and ambiguity research to empirically test how information ambiguity and non-financial factors (e.g., interpersonal information) affect managers’ capital budgeting decisions when in good vs. bad times. Ninety-two managers completed two experiments. In Experiment One, the information was presented sequentially. Our results show that without the presence of non-financial factors, managers tend to maximize the firm value. After receiving non-financial factors, a significant number of managers switched to the self-serving option in good times (the gain condition) but stayed with firm-value maximization in bad times (the loss condition). In Experiment Two, the information was presented simultaneously in the presence and absence of ambiguity. We found that in the presence of ambiguity, the information presentation has no impact on managers’ self-serving bias in good times or their firm-value maximization tendency in bad times. Interestingly, we also observed managers’ use of interpersonal information even in the absence of ambiguity.JEL Classification: D8     

基于风险平价策略的高净值客户资产配置研究

Markowitz奠定了现代金融学中资产组合和配置的研究框架.随着资产配置实践的不断发展,研究者们在均值—方差模型基础上提出了CAMP模型、B-L模型、 风险平价模型及美林时钟模型等,力求通过对风险与收益的控制,实现在资产配置实践中获取最优的效果.在总结既有模型的经验基础上,以风险平价模型为重点,选取股、 债、 商品等为配置对象,验证了风险平价策略在中国高净值客户资产配置中的适用性.     

Taxation and investment behaviour under uncertainty — A multiperiod portfolio analysis

This paper deals with the effects of a proportional income tax with full loss offset provisions on optimal investment behaviour under uncertainty. For convenience we only consider investments in two assets: one risky asset with a random rate of return and one riskless asset with a secure rate of return. We shall see that for a certain class of intertemporal preferences the total tax effects on the optimal investment in the risky asset can be separated in a saving effect and a portfolio effect with the former influencing the optimal level of savings and the latter influencing the composition of the optimal savings, i.e., the choice between investments in the risky and riskless asset.The author is indebted to Terje Hansen, Jan Mossin and Agnar Sandmo for many helpful comments and suggestions.     

Are the poor worse at dealing with ambiguity?

This paper studies the relationship between people’s ambiguity attitudes and income in the field using language as a natural source of ambiguity. It shows that the method of Baillon et al. (2017b) can be adapted for field studies, providing ambiguity measurement tasks that are more comprehensible for nonacademic subjects. Ambiguity attitudes were elicited in two groups of Chinese adolescents (poor rural and rich urban), among whom the income variation is big. In the rural group the poorer are both more ambiguity averse and more a-insensitive, whereas in the urban group the richer are more a-insensitivite. On average, the poor rural adolescents are worse at dealing with ambiguity than their urban counterparts. A-insensitivity, which measures people’s understanding of an ambiguous situation, is an important but sometimes neglected component of ambiguity attitude. Policies aiming to help people improve decisions may focus more on reducing a-insensitivity as this cognitive bias is more likely to be influenced by intervention than people’s intrinsic aversion towards ambiguity.     

An experimental investigation of imprecision attitude and its relation with risk attitude and impatience

We report in this article the result of three experiments on risk, ambiguity, and time attitude. The first two differed by the population considered (students vs. general population) while the third one used a different protocol and concerned students and portfolio managers. We find quite a lot of heterogeneity at the individual level. Of principal interest was the elicitation of risk, time, and ambiguity attitudes and the relationship among these (model free) measures. We find that on the student population, there is essentially no correlation. A non-negligible fraction of the population behaves in an extremely cautious manner in the risk and ambiguity domain. When we drop this population from the sample, the correlation between our measures is also non-significant. We also raise three questions linked to measurement of ambiguity attitudes that come out from our data sets.     

Does gold act as a safe haven against exchange rate fluctuations? The case of Pakistan rupee

Investors often look for a refuge to avoid undesirable exposures to risk during period of extreme downturns in currency returns. We investigate daily gold and rupee exchange rates depreciation against set of currencies over the period of 1992–2015. Using wavelets at multiple time horizons; we find that gold act as a consistent short run hedge against exchange rate hence validating the exchange rate destruction hypothesis. This finding is helpful for speculators in their decision making while taking long and short positions accordingly. This finding suggests that central bank also need to keep other safe haven assets in reserves because the hedging ability of gold is only limited to short run. Further, the role of gold in providing protection against currency risks is also confirmed using quantile regression. These results assist portfolio managers and governments in formulating effectual diversification strategy for preserving investment portfolio during extreme event condition. Our results also suggest that gold has a lead relationship with exchange rate; however, this relationship switches over specific time intervals. This finding is of major concern for policy makers in determining the extent of stabilization in gold prices to bring consistency to exchange rate. Finally, the Granger coherence coefficients confirm that the strength of the causal relationship varies across over all frequencies. These conclusions have important implications for policy makers, economic analysts, portfolio managers and institutional investors.