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

Frederik Lundtofte ()

No 2005:17, Working Papers from Lund University, Department of Economics

Abstract: This paper analyzes the expected life-time utility and the hedging demands in a Lucas (1978) economy, in which the dividend drift term is unknown and mean-reverting. An expression for the individual investor’s expected life-time utility in equilibrium is derived, and his hedging demand is analyzed. The hedging demand consists of two components, which could work in opposite directions so that a conservative investor may end up having a positive hedging demand. Interestingly, this differs from the theoretical findings in Brennan (1998), who analyzes the portfolio choice problem of an agent who learns about a constant expected stock return.

Keywords: learning; incomplete information; equilibrium; hedging demands (search for similar items in EconPapers)
JEL-codes: C13 G11 G12 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2005-02-24
New Economics Papers: this item is included in nep-fin
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Citations: View citations in EconPapers (1)

Published in European Economic Review, 2008, pages 1072-1096.

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Related works:
Journal Article: Expected life-time utility and hedging demands in a partially observable economy (2008)
Working Paper: Expected Life-Time Utility and Hedging Demands in a Partially Observable Economy (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2005_017

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