VITAE

RESEARCH INTERESTS:

 

Theoretical Asset Pricing, Ambiguity Aversion, Portfolio Choice, Investments, Fixed Income Securities, Inflation-Protected Securities, and Derivative Securities

JOB MARKET PAPER:

 

“Ambiguous Information, Risk Aversion, and Asset Pricing,” revised January 2008

 

In this paper I study the effects of risk and uncertainty (in the sense of (Knight (1921)) on stock prices when investors receive information or signals that they find difficult to link to fundamentals and hence treat as ambiguous.  Investors consider a set of models that consists of a single normally distributed prior for fundamentals and a family of normally distributed likelihoods that relate information to fundamentals.  Hence, they neither know the posterior mean nor the posterior variance of fundamentals.  I show that information that roughly confirms beliefs about fundamentals can lead to a lower price than information that leads to a dim view about fundamentals because the risk premium for the stock is lower if information is sufficiently bad. More formally, if investors are averse to risk and ambiguity, then the stock price is a non-monotone and discontinuous correspondence of the signal.  This result is surprising because it cannot occur when investors are Bayesians or when they are ambiguity averse and risk neutral.

WORK IN PROGRESS:

 

“Option Pricing with Ambiguity Aversion,” November 2007

WORKING PAPERS:

 

“Idiosyncratic Inflation Risk and Inflation-Protected Bonds,” revised November 2007

“Inflation and Asset Allocation,” revised November 2007

“The Term Structure of Interest Rates with Heterogeneous Habit Forming Preferences,” revised November 2007