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  • Capital Asset Pricing under Ambiguity | Becker-Friedman Institute Research Respository
    Pricing under Ambiguity This paper generalizes the standard mean variance paradigm to a mean variance ambiguity paradigm by relaxing the assumption that probabilities are known and instead assuming that probabilities are themselves random It extends the CAPM from risk to uncertainty by incorporating ambiguity This model makes the distinction between systematic ambiguity and idiosyncratic ambiguity and proves that the ambiguity premium is proportional to systematic ambiguity It introduces a new

    Original URL path: http://econresearch.uchicago.edu/content/capital-asset-pricing-under-ambiguity (2015-06-03)
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  • From Hyperinflation to Stable Prices: Argentina's Evidence on Menu Cost Models | Becker-Friedman Institute Research Respository
    firms facing real idiosyncratic shocks such as the type studied by Golosov and Lucas 2007 These results are confronted with their empirical counterparts using the micro data underlying Argentina s consumer price index for 1988 1997 when inflation rates went from almost 5000 during one year to less than zero We find some empirical support for several theoretical predictions i the steady state frequency of price changes is unresponsive to inflation for low inflation rates while its elasticity with respect to inflation converges to close to 2 3 as inflation becomes large ii the frequency of price increases is unresponsive to inflation and equal to the frequency of price decreases for small inflation rates while the frequency of price decreases converges to zero as inflation increases iii the average magnitude of price changes is symmetric for price increases and decreases at low inflation rates while for high rates of inflation the magnitude of price increases is increasing with the inflation rate for price decreases is less clearly so in the data iv the steady state dispersion of relative prices is unresponsive to inflation for low rates while it is an increasing function of inflation for high rates of inflation and

    Original URL path: http://econresearch.uchicago.edu/content/hyperinflation-stable-prices-argentinas-evidence-menu-cost-models (2015-06-03)
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  • Information Inertia | Becker-Friedman Institute Research Respository
    such as HTTPS You can switch to HTTPS by trying to view this page again after changing the URL in your browser s location bar to begin with https instead of http Please contact site admin for help if this error continues User login CNetID or Username Password Request new password Log in Information Inertia We 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 We 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 we show that 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 Authors Philipp Illeditsch University of Pennsylvania Scott Condie Brigham Young University Jayant Ganguli University of Essex Publication Date January 2013 BFI Initiative Fiscal Studies JEL Classification D80 Information Knowledge and Uncertainty General D81 Criteria for Decision Making under Risk and Uncertainty G10 General Financial Markets General includes Measurement and Data G11 Portfolio

    Original URL path: http://econresearch.uchicago.edu/content/information-inertia (2015-06-03)
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  • Systemic Risk and Stability in Financial Networks | Becker-Friedman Institute Research Respository
    your browser s location bar to begin with https instead of http Please contact site admin for help if this error continues User login CNetID or Username Password Request new password Log in Systemic Risk and Stability in Financial Networks We provide a framework for studying the relationship between the financial network architecture and the likelihood of systemic failures due to contagion of counterparty risk We show that financial contagion exhibits a form of phase transition as interbank connections increase as long as the magnitude and the number of negative shocks affecting financial institutions are sufficiently small more complete interbank claims enhance the stability of the system However beyond a certain point such interconnections start to serve as a mechanism for propagation of shocks and lead to a more fragile financial system We also show that under natural contracting assumptions financial networks that emerge in equilibrium may be socially inefficient due to the presence of a network externality even though banks take the effects of their lending risk taking and failure on their immediate creditors into account they do not internalize the consequences of their actions on the rest of the network Authors Daron Acemoglu Massachusetts Institute of Technology Asuman

    Original URL path: http://econresearch.uchicago.edu/content/systemic-risk-and-stability-financial-networks (2015-06-03)
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  • Financial Networks and Contagion | Becker-Friedman Institute Research Respository
    Password Request new password Log in Financial Networks and Contagion We model contagions and cascades of failures among organizations linked through a network of financial interdependencies We identify how the network propagates discontinuous changes in asset values triggered by failures e g bankruptcies defaults and other insolvencies and use that to study the consequences of integration each organization becoming more dependent on its counterparties and diversification each organization interacting with a larger number of counterparties Integration and diversification have different nonmonotonic effects on the extent of cascades Initial increases in diversification connect the network which permits cascades to propagate further but eventually more diversification makes contagion between any pair of organizations less likely as they become less dependent on each other Integration also faces tradeoffs increased dependence on other organizations versus less sensitivity to own investments We explore some strategic implications failing organizations can only be saved by unfair trades and moral hazard issues arise from incentives to seek such bailouts Finally we illustrate some aspects of the model with data on European debt cross holdings Authors Matthew Elliott California Institute of Technology Benjamin Golub Harvard Society of Fellows Matthew Jackson Stanford University Publication Date January 2013 BFI Initiative Fiscal

    Original URL path: http://econresearch.uchicago.edu/content/financial-networks-and-contagion (2015-06-03)
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  • Home Production and Social Security Reform | Becker-Friedman Institute Research Respository
    help if this error continues User login CNetID or Username Password Request new password Log in Home Production and Social Security Reform This paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study Social Security reforms As such the model differentiates both consumption goods and labor effort according to their respective roles in home production and market activities Using a calibrated model we conduct a policy experiment where we eliminate the current pay as you go Social Security System and study the steady state impact We find that the experiment has important implications for labor supply as well as consumption decisions and that these decisions are influenced by the presence of a home production technology Comparing our economy to a onegood economy without home production the welfare gains of eliminating Social Security are magnified significantly We further demonstrate that the qualitative results hold with the less extreme policy reform where we delay the eligible Social Security benefits claimant age by four years These policy analyses suggest the importance of modeling home production and distinguishing between both time use and consumption goods depending on whether they are involved in market or home production

    Original URL path: http://econresearch.uchicago.edu/content/home-production-and-social-security-reform (2015-06-03)
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  • From child maltreatment to violent offending: An examination of mixed-gender and gender-specific models | Becker-Friedman Institute Research Respository
    maltreatment predicts juvenile violence but it is uncertain whether the effects of victimization persist into adulthood or differ across gender Furthermore we know little about the mechanisms underlying the victim perpetrator cycle for males and females Consequently this study analyzed associations between child maltreatment and a number of adult measures of violent offending within mixed gender and gender specific models Along with main effects the study directly tested the moderating effects of gender on the maltreatment violence link and analyzed theory informed gender specific mediators Data were derived from the Chicago Longitudinal Study a panel investigation of 1 539 low income minority participants born in 1979 or 1980 Child welfare juvenile court and criminal court records informed the study s explanatory and outcome measures Prospectively collected covariate and mediator measures originated with parent teacher and self reports along with several administrative sources Results indicated that child maltreatment ages 0 to 11 significantly predicted all study indicators of violence in the full sample and most study outcomes in the male and female subsamples In no instance did gender moderate the maltreatment violence association Late childhood early adolescence environmental instability childhood externalizing behaviors and adolescent peer social skills fully mediated the maltreatment

    Original URL path: http://econresearch.uchicago.edu/content/child-maltreatment-violent-offending-examination-mixed-gender-and-gender-specific-models (2015-06-03)
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  • Uncertainty and Investment Delays | Becker-Friedman Institute Research Respository
    You can switch to HTTPS by trying to view this page again after changing the URL in your browser s location bar to begin with https instead of http Please contact site admin for help if this error continues User login CNetID or Username Password Request new password Log in Uncertainty and Investment Delays This paper develops a simple model in which uncertainty about a future tax change leads to

    Original URL path: http://econresearch.uchicago.edu/content/uncertainty-and-investment-delays (2015-06-03)
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