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Cambridge Finance Workshop - Raman Uppal

Cambridge Finance Workshop Series are usually held on Thursdays during term time. The workshops are an opportunity for those working in finance to present their latest results or papers.
When Jan 28, 2021
from 01:00 PM to 02:00 PM
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Professor Raman Uppal, EDHEC

 

Investor Confidence and Portfolio Dynamics

Abstract
To explain the empirically observed heterogeneity in household portfolio and
wealth dynamics, we develop a general-equilibrium framework with multiple risky
assets along with households that differ in their confidence about the return pro-
cess for the risky assets. Consistent with recent empirical evidence, less-confident households overinvest in safe assets, hold underdiversified portfolios concentrated in familiar assets, are trend chasers, and earn lower absolute and risk-adjusted investment returns. More confident investors hold riskier positions and exhibit superior market-timing abilities. The model also explains why this investment behavior, despite Bayesian learning and optimal decision, persists for long periods, thereby exacerbating wealth inequality.

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