It is generally accepted that excessive exuberance or gloom in investor sentiment contributes to booms and crashes in asset prices but, because of its complex interaction with other aspects of the valuation process, these effects are not easy to identify with statistical confidence and this limits the scope for crafting an adequate and early policy response. To fill this gap, we develop an ex a...

One of the most important problems faced by every investor is asset allocation. An investor during making investment decisions has to search for equilibrium between risk and returns. Risk ‎and ‎return are uncertain parameters in ‎the ‎suggested portfolio optimization models and should be estimated to solve the‎problem. The estimation might‎ lead ‎to ‎large ‎error in the final decision. One of t...

This paper uses S&P 500 index options data to examine whether proxies of investor sentiment, or aggregate errors in investor beliefs, affect option prices and asset pricing kernel. I find that when market sentiment becomes more bearish (resp. bullish), both index option smile and asset pricing kernel are more (resp. less) negatively sloped. These relations are statistically and economically sig...

We review evidence about how psychological biases affect investor behavior and prices. Systematic mispricing probably causes substantial resource misallocation. We argue that limited attention and overconfidence cause investor credulity about the strategic incentives of informed market participants. However, individuals as political participants remain subject to the biases and self-interest th...

When an asset is completely liquid, an investor can realize his desirable strategy. But when the asset is not sufficiently liquid, the investor cannot trade the asset continuously and his strategy is restricted. He has to consider the risk of the failure of the trade. In this paper a risky asset is traded at the random times and an investor has a power utility function. In this situation we sol...

When the asset is completely liquid, the investor can realize his desirable strategy. But when the asset is not sufficiently liquid, the investor cannot trade the asset continuously and the strategy is restricted. He has to consider the risk of the failure of the trade. In this paper the risky asset is traded at the random times and the investor has the power utility function. In this situation...

We derive optimal portfolio weights for an investor who has specific beliefs regarding the distribution of a stock price at a future time. For example, a fundamental investor will want to take advantage of the information his analysis provides when constructing a portfolio. In this regard, we examine the optimal weights for models in which the investor believes that there is a range in which th...

Crash hedging strategies are derived as solutions of non–linear differential equations which itself are consequences of an equilibrium strategy which make the investor indifferent to uncertain (down) jumps. This is done in the situation where the investor has a logarithmic utility and where the market coefficients after a possible crash may change. It is scrutinized when and in which sense the ...

In this article we consider a game theoretic approach to the Risk-Sensitive Benchmarked Asset Management problem (RSBAM) of Davis and Lleo [6]. In particular, we consider a stochastic differential game between two players, namely, the investor who has a power utility while the second player represents the market which tries to minimize the expected payoff of the investor. The market does this b...

Using China’s stock market as the testing venue, this study examines how corporate transparency helps explain the sensitivity of stock prices to general investor sentiment. We find that firms with low corporate transparency, measured by a battery of proxies including state ownership, the prevalence of related party transactions, accrual-based earnings management, audit opinions, and the quality...