EDHEC Business School

About: EDHEC Business School is a education organization based out in Roubaix, France. It is known for research contribution in the topics: Portfolio & Capital asset pricing model. The organization has 294 authors who have published 1749 publications receiving 42687 citations. The organization is also known as: Ecole des Hautes Etudes Commerciales du Nord & EDHEC Business School.

Asset Prices with Heterogeneity in Preferences and Beliefs

Abstract: In this paper, we study asset prices in a dynamic, continuous-time, general-equilibrium endowment economy where agents have “catching up with the Joneses” utility functions and differ with respect to their beliefs (because of differences in priors) and their preference parameters for time discount, risk aversion, and sensitivity to habit. A key contribution of our paper is to demonstrate how one can obtain a closed-form solution to the consumption-sharing rule for agents who have both heterogeneous priors and heterogeneous preferences without restricting the risk aversion of the two agents to special values. We solve in closed form also for the the state-price density, the riskless interest rate and market price of risk; the stock price, equity risk premium, and volatility of stock returns; the term structure of interest rates; and the conditions necessary to obtain a stationary equilibrium in which both agents survive in the long run. The methodology we develop is sufficiently general that, as long as markets are complete, it can be used to obtain the sharing rule and state prices for models set in discrete or continuous time and for arbitrary endowment and belief updating processes.

A note on the dai–singleton canonical representation of affine term structure models*

Abstract: Dai and Singleton (2000) study a class of term structure models for interest rates that specify the short rate as an affine combination of the components of an N-dimensional affine diffusion process. Observable quantities in such models are invariant under regular affine transformations of the underlying diffusion process. In their canonical form, the models in Dai and Singleton (2000) are based on diffusion processes with diagonal diffusion matrices. This motivates the following question: Can the diffusion matrix of an affine diffusion process always be diagonalized by means of a regular affine transformation? We show that if the state space of the diffusion is of the form D = R-+(m) x RN-m for integers 0 = N - 1, there exists a regular affine transformation of D onto itself that diagonalizes the diffusion matrix. So in this case, the Dai-Singleton canonical representation is exhaustive. On the other hand, we provide examples of affine diffusion processes with state space R-+(2) x R-2 whose diffusion matrices cannot be diagonalized through regular affine transformation. This shows that for 2 <= m <= (N - 2), the assumption of diagonal diffusion matrices may impose unnecessary restrictions and result in an avoidable loss of generality.

Growth in Regions

Abstract: We use a newly assembled sample of 1,503 regions from 82 countries to compare the speed of per capita income convergence within and across countries. Regional growth is shaped by similar factors as national growth, such as geography and human capital. Regional convergence is about 2.5% per year, not more than 1% per year faster than convergence between countries. Regional convergence is faster in richer countries, and countries with better capital markets. A calibration of a neoclassical growth model suggests that significant barriers to factor mobility within countries are needed to account for the evidence.

Measuring High-Frequency Causality Between Returns, Realized Volatility, and Implied Volatility

Abstract: We provide evidence on two alternative mechanisms of interaction between returns and volatilities: the leverage ef fect and the volatility feedback effect We stress the importance of distinguishing between realized volatility and implied volatility and find that implied volatilities are essential for assessing the volatility feedback effect We also study the impact of news on returns and volatility We introduce a concept of news based on the difference between implied and realized volatilities (the variance risk premium) and find that a positive variance risk premium has more impact on returns than a negative variance risk premium Copyright The Author 2011 Published by Oxford University Press All rights reserved For Permissions, please e-mail: journalspermissions@oupcom, Oxford University Press