WKSP-Ambiguity and Robustness in Macroeconomics and Finance

Simone Cerreia Vioglio, Assistant Professor of Economics at Bocconi University, presents preliminary research on self-confirming long run biases. He and his collaborators consider a myopic decision maker facing a recurrent decision problem. They show that a long run bias emerges that favors tested actions, that is, actions on which information has been collected over time. In so doing they provide, inter alia, a learning foundation for the self-confirming equilibrium with model uncertainty of Battigalli et al. (2011). This lecture is a part of the Workshop on Ambiguity and Robustness in Macroeconomics and Finance. ➡ Subscribe: About #UChicago: Since its founding in 1890, the University of Chicago has been a destination for rigorous inquiry and field-defining research.This transformative academic experience empowers students and scholarsto challenge conventional thinking in pursuit of original ideas. #UChicago on the Web: Home: News: Facebook: Twitter: Instagram: University of Chicago o

Cosmin Ilut, Assistant Professor of Economics at Duke University, presents on a DSGE model with endogenous financial asset supply and ambiguity averse investors. An increase in uncertainty about financial conditions leads firms to substitute away from debt and reduce shareholder payout in bad times when measured risk premia are high. Regime shifts in volatility generate large low-frequency movements in asset prices due to uncertainty premia that are disconnected from the business cycle. This lecture is a part of the Workshop on Ambiguity and Robustness in Macroeconomics and Finance. ➡ Subscribe: About #UChicago: Since its founding in 1890, the University of Chicago has been a destination for rigorous inquiry and field-defining research.This transformative academic experience empowers students and scholarsto challenge conventional thinking in pursuit of original ideas. #UChicago on the Web: Home: News: Facebook: Twitter: Instagram: University of Chicago on YouTube: /uchicago *** ACCESSI

Nina Boyarchenko, an Economist at the Federal Reserve Bank of New York, presents on her research into ambiguity spillovers. This lecture is a part of the Workshop on Ambiguity and Robustness in Macroeconomics and Finance. ➡ Subscribe: About #UChicago: Since its founding in 1890, the University of Chicago has been a destination for rigorous inquiry and field-defining research.This transformative academic experience empowers students and scholarsto challenge conventional thinking in pursuit of original ideas. #UChicago on the Web: Home: News: Facebook: Twitter: Instagram: University of Chicago on YouTube: /uchicago *** ACCESSIBILITY: If you experience any technical difficulties with this video or would like to make an accessibility-related request, please email digicomm@uchicago.edu.

Jianjun Miao, Associate Professor of Economics at Boston University, offers an ambiguity-based interpretation of variance premium, the difference between risk-neutral and objective expectations of market return variance as a compounding effect of both belief distortion and variance differential regarding uncertain economic regimes. He and his colleagues endogenously generate variance premium without imposing exogenous stochastic volatility or jumps in consumption process. Such a framework can reasonably match the mean variance premium as well as the mean equity premium, equity volatility, and the mean risk-free rate in the data. They fi nd that about 96 percent of the mean variance premium can be attributed to ambiguity aversion. Applying the model to historical consumption data, they fi nd that variance premium mostly captures depressions, deep recessions, and financial panics, with a postwar peak in 2009. This lecture is a part of the Workshop on Ambiguity and Robustness in Macroecon

Philipp Illeditsch, Assistant Professor of Finance at the University of Pennsylvania, and his colleagues study how information about an asset affects optimal portfolios and equilibrium asset prices when investors are not sure about the model that predicts future asset values and thus treat the information as ambiguous. They show that this ambiguity leads to optimal portfolios that are insensitive to news even though there are no information processing costs or other market frictions. In equilibrium, stock prices may not react to public information that is worse than expected, and this mispricing of bad news leads to profitable trading strategies based on public information. This lecture is a part of the Workshop on Ambiguity and Robustness in Macroeconomics and Finance. ➡ Subscribe: About #UChicago: Since its founding in 1890, the University of Chicago has been a destination for rigorous inquiry and field-defining research.This transformative academic experience empowers students and s

Sujoy Mukerji, Professor of Economics at the University of Oxford, presents on the underlying research of his recent paper, "Ambiguity and the Historical Equity Premium." This paper assesses the quantitative impact of ambiguity on the historically observed financial asset returns and prices. The single agent, in a dynamic exchange economy, treats uncertainty about the conditional mean of the probability distribution on consumption and dividends in the next period as ambiguous, an ambiguity that is endogenously dynamic, e.g., increasing during recessions. Mukerji and his coauthors calibrate ambiguity aversion to match only the first moment of the risk-free rate in data and, importantly, condition the uncertainty of each period on the observed history of (U.S.) macroeconomic growth outcomes. They show that the model implied time series of asset returns match observed return dynamics very substantially. This lecture is a part of the Workshop on Ambiguity and Robustness in Macroeconomics a

Anmol Bhandari, a PhD Student in Economics at New York University, presents on his study of risk sharing arrangements in settings characterized with Knightian uncertainty. In general, both the demand for insurance and risk perceptions are endogenous and interact in these settings. This research attempts to identify the key mechanisms affecting insurance in stylized environments differing in two dimensions: market completeness and nature of uncertainty. This, in turn, has bearing on market price of risk and long-run survival. This lecture is a part of the Workshop on Ambiguity and Robustness in Macroeconomics and Finance. ➡ Subscribe: About #UChicago: Since its founding in 1890, the University of Chicago has been a destination for rigorous inquiry and field-defining research.This transformative academic experience empowers students and scholarsto challenge conventional thinking in pursuit of original ideas. #UChicago on the Web: Home: News: Facebook: Twitter: Instagram: University of Ch

Lorenzo Garlappi, Associate Professor of Finance at the University of British Columbia, presents on his collaborative research on the effect of ambiguity on corporate financial decisions using a non-Bayesian multiprior approach. He and his colleagues use two models of decision making under ambiguity, Minimum Expected Utility (MEU) due to Gilboa and Schmeidler (1989) and Consensus Expected Utility (CEU) due to Bewley (2002), to study a canonical corporate finance model of real investment with expansion and contraction options. They show that MEU decision makers behave as pessimistic single-prior decision makers, reluctant to invest and eager to abandon. On the other hand, CEU decision makers act very dierently. They too are reluctant to invest but reluctant to abandon projects. Moreover, anticipation of future reluctance to abandon may induce CEU agents to forgo investment in the first place. In this setting financial contracts, such as convertible bonds, can be used to make the initial