Dynamic asset allocation and the informational efficiency of markets

Article Abstract:

Markets have an allocational role; even in the absence of news about payoffs, prices change to facilitate trade and allocate resources to their best use. Allocational price changes create noise in the signal extraction process, and markets where such trading is important are markets in which we may expect to find a failure of informational efficiency. An important source of allocational trading is the use of dynamic trading strategies caused by the incomplete equitization of risks. Incomplete equitization causes trade. Trade implies the inefficiency of passive strategies, thus requiring investors to determine whether price changes are informational or allocational. (Reprinted by permission of the publisher.)

Financial markets

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Affine term structure models and the forward premium anomaly

Article Abstract:

This article evaluates the tendency for high interest rate currencies to appreciate using the term structure of interest rates. Affine models are used to study premium anomalies which require that state variables affect state prices in different currencies, also nominal interest rates have negative values with positive probability.

Evaluation, Prices, Interest rates, Money

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Learning about predictability: the effects of parameter uncertainty on dynamic asset allocation

Article Abstract:

This article examines the effects on optimal dynamic portfolio choices when stock return predictability is uncertain. Issues include the realtions between dynamic learning and stock returns; the cost of ignoring learning is found to be quite substantial.

Uncertainty, Parameter estimation

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