A Theory of Intermediated Investment with Hyperbolic Discounting Investors GAO Feng (Tsinghua SEM) HE Ping (Tsinghua SEM) HE Xi (MIT Economics)
GAO Feng (Tsinghua SEM) HE Ping (Tsinghua SEM) HE Xi (MIT Economics)
P reface CR A Long time ago, a visitor from out of town came to a tour in Manhattan. At the end of the tour they took him to the financial district. When they arrived to Battery park the guide showed him some nice yachts anchoring there, and said, here are the yachts of our bankers and stockbrokers. And where are the yachts of the investors? asked the naive visitor
A long time ago, a visitor from out of town came to a tour in Manhattan. At the end of the tour they took him to the financial district. When they arrived to Battery Park the guide showed him some nice yachts anchoring there, and said, "Here are the yachts of our bankers and stockbrokers." "And where are the yachts of the investors?" asked the naive visitor. Preface
Investment c& Investment decisions are intertemporal choices involvin g tradeoffs among costs and benefits occurring at different times, which not only affect one 's health, wealth, and happiness, but may also determine the economic prosperity of nations CR Fisher(1930): investment is not an end in itself but rather a process for distributing consumption over time cR Major concerns: return, risk, information acquisition, life cycle, liquidity constraint, risk preference, background risk, etc
Investment decisions are intertemporal choices involving tradeoffs among costs and benefits occurring at different times, which not only affect one's health, wealth, and happiness, but may also determine the economic prosperity of nations Fisher (1930): investment is not an end in itself but rather a process for distributing consumption over time Major concerns: return, risk, information acquisition, lifecycle, liquidity constraint, risk preference, background risk, etc. Investment
Related studies CR Samuelson(1969, REStat), Merton(1969, REStat): dynamic programming with uncertainty CR Ehrlich and Hamlen( 1995, JEDC) precommitment strategy with intermittent revision CR Campbell and Viceira(1999, QJE): time varying Investment opportunities CR Viceira(2001, JF): background risk, life-cycle CR Gollier(2002, JME): Liquidity constraint, decreasing aversion to risk on wealth R Chacko and viceira(2005, RFS): incomplete market with stochastic volatility
Samuelson (1969, REStat), Merton (1969, REStat): dynamic programming with uncertainty Ehrlich and Hamlen (1995, JEDC): precommitment strategy with intermittent revision Campbell and Viceira (1999, QJE): time varying investment opportunities Viceira (2001, JF): background risk, life-cycle Gollier (2002, JME): Liquidity constraint, decreasing aversion to risk on wealth Chacko and Viceira (2005, RFS): incomplete market with stochastic volatility Related Studies
Empirical Facts oR Investment behaviors are more complex than what most standard theories could explain C3 Barber and odean(2002, RFS): online trading make investors trade more actively but less profitable C3 Barnea, Crongvist and Siegel(2010, JFE): genetic factor is critical for investor behavior C He and Hu (2010, RBF): horizon effect C3 Mastrobuoni and Weinberg(2009, AEj-EP: consumptions are not smoothed C3 Meier and Sprenger(2010, AEJ-AE): individuals with present-biased preference over-borrow on their credit cards
Investment behaviors are more complex than what most standard theories could explain Barber and Odean (2002, RFS): online trading make investors trade more actively but less profitable Barnea, Cronqvist and Siegel (2010, JFE): genetic factor is critical for investor behavior He and Hu (2010, RBF): horizon effect Mastrobuoni and Weinberg (2009, AEJ-EP): consumptions are not smoothed Meier and Sprenger(2010, AEJ-AE): individuals with present-biased preference over-borrow on their credit cards Empirical Facts