Paul Ehling

Management science 64(9) p. 4157-4176 Doi: https://doi.org/10.1287/mnsc.2017.2733

We study portfolio choice with multiple stocks and capital gain taxation assuming that capital losses can only offset current or future realized capital gains. We show, through backtesting using empirical distributions, that optimal equity holdings over an extended period are significantly lower on average than benchmark holdings suggested in the literature. Using Value and Growth or Small and Large portfolios, the backtests show that allocations remain persistently under-diversified. Carry-over losses have large economic significance since they can dramatically shrink the no-trade region. Finally, the backtested economic cost of incorrectly modeling capital losses is at least 8 percent of lifetime wealth.

Management science 63(6) p. 1919-1937 Doi: https://doi.org/10.1287/mnsc.2015.2413

Review of Economic Studies 85(3) p. 1752-1780 Doi: https://doi.org/10.1093/restud/rdx077

We study asset prices and portfolio choice with overlapping generations, where the young disregard history to learn from own experience. Disregarding history implies less precise estimates of output growth, which in equilibrium leads the young to increase their investment in risky assets after positive returns, that is, they act as trend chasers. In equilibrium, the risk premium decreases after a positive shock and, therefore, trend chasing young agents lose wealth relative to old agents who behave as contrarians. Consistent with findings from survey data, the average belief about the risk premium in the economy relates negatively to future excess returns and is smoother than the true risk premium.

Journal of Economic Theory 160 p. 438-462 Doi: https://doi.org/10.1016/j.jet.2015.10.006

Journal of Financial Economics 90(3) p. 298-312 Doi: https://doi.org/10.1016/j.jfineco.2008.01.003

Journal of Empirical Finance 13(4/5) p. 396-416