Pricing Intertemporal Risk When Investment Opportunities Are Unobservable

The intertemporal capital asset pricing model (ICAPM) predicts that an unobservable factor capturing changes in expected market returns should be priced in the cross section. My Bayesian framework accounts for uncertainty in the intertemporal risk factor and gauges the effects of prior information about investment opportunities on model inferences. Whereas an uninformative prior specification produces weak evidence that intertemporal risk is priced, incorporating prior information about market-return predictability generates a large space of ex ante reasonable priors in which the estimated intertemporal risk factor is positively priced. Overall, the cross-sectional tests reject the capital asset pricing model (CAPM) and indicate support for the ICAPM.This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]

Māori Culture From the Eyes Of An American

While still in the midst of their study abroad experiences, students at Linfield University write reflective essays. Their essays address issues of cultural similarity and difference, compare lifestyles, mores, norms, and habits between their host countries and home, and examine changes in perceptions about their host countries and the United States. In this essay, Katelyn Cederburg describes observations during their study abroad program at Waikato University in Hamilton, New Zealand

The assignment of moral status: Age-related differences in the use of three mental capacity criteria

This study examined children's and young adults' use of three mental capacity criteria for treating an entity as one to which moral subjects have moral obligations, that is, as having moral status. In line with philosophical theorizing, these criteria were the capacity to (1) perceive; (2) suffer; and (3) think. In this study, 116 respondents aged 9 to 18 years old gave moral judgments and guilt and shame attributions in response to stories about perpetrators whose behaviour negatively affected entities with different mental capacities. The moral judgments revealed that 9-year-old children assigned moral status primarily on the basis of the victimized entity's ability to suffer. Eleven-year-old children also used the ability to suffer, but they assigned additional moral status when the victimized entity was able to perceive. Young adults also used perception as a criterion, but they assigned additional moral status when the victimized entity was simultaneously able to suffer and able to think. When compared to their moral judgments, the moral emotion attributions of respondents of all age groups were more strongly affected by the victimized entity's ability to think. © 2008 The British Psychological Society

Stocks for the long run? Evidence from a broad sample of developed markets

We characterize the distribution of long-term equity returns based on the historical record of stock market performance in a broad cross section of 39 developed countries over the period from 1841 to 2019. Our comprehensive sample mitigates concerns over survivor and easy data biases that plague other work in this area. A bootstrap simulation analysis implies substantial uncertainty about long-horizon stock market outcomes, and we estimate a 12% chance that a diversified investor with a 30-year investment horizon will lose relative to inflation. The results contradict the conventional advice that stocks are safe investments over long holding periods. © 2021 Elsevier B.V.24 month embargo; available online 5 July 2021This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]

Are Stocks Riskier over the Long Run? Taking Cues from Economic Theory

We study whether stocks are riskier or safer in the long run from the perspective of Bayesian investors who employ the long-run risk, habit formation, or prospect theory models to form prior beliefs about return dynamics. Economic theory delivers important guidance for long-run investment opportunities. Specifically, incorporating prior information from the habit formation or prospect theory models reinforces beliefs in mean reversion and inferences that stocks are safer over longer horizons. Conversely, investors with long-run risk priors perceive weaker mean reversion and riskier equities. Model-based information is particularly important for inferences about uncertainty in the dividend growth component of returns.Israel Science Foundation [233/14]; Slovak Scientific Grant Agency (VEGA grant) [1/0344/14]; Slovak Research and Development Agency [APVV-14-0357]24 month embargo: published online: 14 July 2017This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]

Understanding the Risk-Return Relation: The Aggregate Wealth Proxy Actually Matters

<p>The ICAPM implies that the market’s conditional expected return is proportional to its conditional variance and that the reward-to-risk ratio equals the representative investor’s coefficient of relative risk aversion. Prior studies examine this relation using the stock market to proxy for aggregate wealth and find mixed results. We show, however, that stock-based tests suffer from low power and lead to biased estimates of the risk-return tradeoff when stocks are an imperfect market proxy. Tests designed to mitigate this bias by incorporating a more comprehensive measure of aggregate wealth produce large, positive estimates of the risk-aversion coefficient around seven to nine. Supplementary materials for this article are available online.</p

Tax uncertainty and retirement savings diversification

We investigate the optimal savings decisions for investors with access to pre-tax (traditional) and post-tax (Roth) versions of tax-advantaged retirement accounts. The model features a progressive tax schedule and uncertainty over future tax rates. Traditional accounts are valuable for hedging retirement account performance and managing current income near tax-bracket cutoffs, whereas Roth accounts allow investors to mitigate uncertainty over future tax schedules. The optimal asset location policy for most households involves diversifying between traditional and Roth vehicles. Contrary to conventional advice, the substantial economic benefits from Roth investments are not limited to investors with low current income. (C) 2017 Elsevier B.V. All rights reserved.36 month embargo; published online: 6 October 2017.This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]

On the Economic Significance of Stock Return Predictability

We study the effects of time-varying volatility and investment horizon on the economic significance of stock market return predictability from the perspective of Bayesian investors. Using a vector autoregression framework with stochastic volatility (SV) in market returns and predictor variables, we assess a broad set of twenty-six predictors with both in-sample and out-of-sample designs. Volatility and horizon are critically important for assessing return predictors, as these factors affect how an investor learns about predictability and how she chooses to invest based on return forecasts. We find that statistically strong predictors can be economically unimportant if they tend to take extreme values in high volatility periods, have low persistence, or follow distributions with fat tails. Several popular predictors exhibit these properties such that their impressive statistical results do not translate into large economic gains. We also demonstrate that incorporating SV leads to substantial utility gains in real-time forecasting.24 month embargo; first published 19 May 2022This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]