Hedging Demands, Imperfect Information, and Incomplete Markets

摘要: I present a model of consumption and portfolio choice with imperfect information. solve analytically the problem for an investor learning about current value time-varying expected returns. When prices are only observables, optimally estimates returns using realized Because this, market is observationally complete imperfectly informed investor. The observational completeness allows me to find analytical, closed-form solutions investor's problem. show how affects both covariance smoothing component hedging portfolio. Applying monthly return data, significant reduction in demands due In contrast assuming observed, some cases implies agent will hold negative implied R2 forecast regression, other words predictable fraction variance, discuss relationship between regression.