The Price of Uncertainty in the Term Structure of Equity and Treasury Yields

Job Market Paper

Abstract: I propose a consumption-based asset pricing model in which the decision maker prices U.S. Treasury zero-coupon bonds and dividend cash flows on the aggregate S&P500 index with maturities up to 30 years. The decision maker does not know the objective probability generating the data, and she evaluates a set of models that is twisted to include structured parametric alternatives. I set up a state-space with macroeconomic and aggregate financial variables to measure how the market price of (model) uncertainty contributes to the short and long-run payoff valuation. My analysis replicates prominent features of the data for both asset classes.

SSRN draft is here.

Ambiguity, Prudence and Optimal Portfolio

Reject and Resubmit Review of Financial Studies

Abstract: This paper extends the robust mean-variance analysis of Maccheroni et al. (2013) by investigating the contribution of ambiguity prudence to the optimal stock allocation when the investor evaluates portfolio compositions as described by the smooth model under ambiguity criterion. Ambiguity prudence captures an aversion towards model uncertainty that increases the more the investor believes that unfavourable events are likely to realise. I derive a higher-order approximation of the certainty equivalent to disentangle the contribution of preferences and beliefs. I analyse two relevant portfolio problems to show that ambiguity prudence puts non-linearities into the investor's valuation that induce sizeable variations from the robust mean-variance solution.

SSRN draft is here. Slides are here.

What Moves Prices? Dynamics of Expected Returns and Fundamentals

with Christian Schlag

Abstract: In this paper we propose a model that explains up to the 80% and 51% (42% and 31%) of the in-sample (out-of-sample) variation between 1978 (1999) and 2020 in annual dividend growth and returns rates on the aggregate S&P500. To proxy the time-variation of investors' beliefs, we use penalized autoregressive methods and predictors that summarize a large set of explanatory variables, mostly valuation ratios. We combine model-implied conditional expectations and present value identities to investigate the drivers of the time variation in the price-to-dividend and price-to-earnings ratios. We find that unconditionally time-varying expected return explains most of the movement, but in the last twenty years, time-varying expectations on fundamentals have significantly increased their contribution.

Consumption Sharing under Heterogeneous Beliefs and Ambiguity Attitudes

Abstract: This paper studies the optimal consumption allocation when investors have heterogeneous beliefs and ambiguity attitudes towards three sources of uncertainty: the first two concern the conditional distribution of consumption, while the third one concerns the persistence of the shocks hitting the economy. I provide a mechanism to explain why, as economic conditions deteriorate, subjective beliefs polarize. If the economy has a large number of periods, then disagreement over the persistent component of consumption becomes a main driver of the changes in the distribution of wealth.

Assets as Lotteries

with Paul Schneider

Lecturer

Master of Science

• Advanced Empirical Asset Pricing, Goethe University Frankfurt, 2021 - today.
• Machine Learning Methods in Asset Pricing, Goethe University Frankfurt, 2022 - today.

Teaching Assistant

Bachelor

• Microeconomics I, Bocconi University, 2015 - 2020.
• Macroeconomics I, Bocconi University, 2016 - 2016.
• Computational Microeconomics - Game Theory, Bocconi University, 2018 - 2020.

PhD

• Microeconomics I - Decision Theory, Bocconi University, 2016 - 2018.