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Author Hammami, Salwa M
Title Investor preferences and financial puzzles
book jacket
Descript 128 p
Note Source: Dissertation Abstracts International, Volume: 65-05, Section: A, page: 1897
Adviser: Ignacio Palacios-Huerta
Thesis (Ph.D.)--Brown University, 2004
The aim of this work is to measure the ability of utility-based asset pricing models to fit aggregate data coming from U.S. financial markets. We start by providing, in an explicit quantitative example, a ranking of seven consumption-CAPM models that heretofore have been extensively investigated, each in isolation. The tightly parameterized structures are ranked according to the size of their pricing errors based on the Hansen and Jagannathan (1997) specification error test. Our findings suggest little supportive evidence in favor of one model vastly out-performing the rest. However, we are able to document a few patterns where there are clear benefits to using one model over another. We also find that some models perform better at quarterly than annual samples, and vice versa. In the next two chapters, we explore the ability of Gul and Pesendorfer's (2001a, 2001b) dynamic self-control model to contribute to the resolution of two financial puzzles. The first is the equity-premium puzzle, for which we demonstrate that a variation of the model allowing investors with a preference for temptation to exhibit an urge to save, coupled with only a slight variation in their risk-aversion, goes a long way in explaining the high mean, volatility, and predictability of the risky asset. In the later chapter, we use the original formulation of the Gul and Pesendorfer model to justify the circumstances under which credit card holders find the simultaneous accumulation of liquid assets and revolving credit card debt desirable. Our two applications of the self-control model suggest that there may be an economic reality to defining consumers' temptations in later periods to influence their choices in earlier periods
School code: 0024
Host Item Dissertation Abstracts International 65-05A
Subject Economics, Finance
Economics, General
Psychology, Behavioral
Alt Author Brown University
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