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Expected Life-Time Utility and Hedging Demands in a Partially Observable Economy

Lundtofte, Frederik LU (2008) In European Economic Review 52(6). p.1072-1096
Abstract
This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investor's expected life-time utility, and analyze his hedging demands for intertemporal changes in the stochastic unobservable growth of the endowment process and the changing quality of information regarding these changes. The hedging demands consist of two components, which could work in opposite directions so that a conservative consumer may end up having positive hedging demands. Our results are qualitatively different from those prevailing under constant growth (cf. [Brennan, M.J., 1998. The role of learning in dynamic portfolio... (More)
This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investor's expected life-time utility, and analyze his hedging demands for intertemporal changes in the stochastic unobservable growth of the endowment process and the changing quality of information regarding these changes. The hedging demands consist of two components, which could work in opposite directions so that a conservative consumer may end up having positive hedging demands. Our results are qualitatively different from those prevailing under constant growth (cf. [Brennan, M.J., 1998. The role of learning in dynamic portfolio decisions. European Finance Review, 1, 295–306; Ziegler, A., 2003. Incomplete Information and Heterogeneous Beliefs in Continuous-Time Finance. Springer, Berlin, Chapter 2]. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Learning, Incomplete information, Equilibrium, Hed
in
European Economic Review
volume
52
issue
6
pages
1072 - 1096
publisher
Elsevier
external identifiers
  • WOS:000259466200007
  • Scopus:49349114120
ISSN
1873-572X
DOI
10.1016/j.euroecorev.2007.09.003
language
English
LU publication?
yes
id
08624198-fa39-4626-86d0-eca6288b5ae4 (old id 1384490)
date added to LUP
2009-04-20 12:27:13
date last changed
2016-10-13 05:01:17
@misc{08624198-fa39-4626-86d0-eca6288b5ae4,
  abstract     = {This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investor's expected life-time utility, and analyze his hedging demands for intertemporal changes in the stochastic unobservable growth of the endowment process and the changing quality of information regarding these changes. The hedging demands consist of two components, which could work in opposite directions so that a conservative consumer may end up having positive hedging demands. Our results are qualitatively different from those prevailing under constant growth (cf. [Brennan, M.J., 1998. The role of learning in dynamic portfolio decisions. European Finance Review, 1, 295–306; Ziegler, A., 2003. Incomplete Information and Heterogeneous Beliefs in Continuous-Time Finance. Springer, Berlin, Chapter 2].},
  author       = {Lundtofte, Frederik},
  issn         = {1873-572X},
  keyword      = {Learning,Incomplete information,Equilibrium,Hed},
  language     = {eng},
  number       = {6},
  pages        = {1072--1096},
  publisher    = {ARRAY(0xb1fcd10)},
  series       = {European Economic Review},
  title        = {Expected Life-Time Utility and Hedging Demands in a Partially Observable Economy},
  url          = {http://dx.doi.org/10.1016/j.euroecorev.2007.09.003},
  volume       = {52},
  year         = {2008},
}