Alexander Michaelides
Imperial College London
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Publication
Featured researches published by Alexander Michaelides.
Journal of Econometrics | 2000
Alexander Michaelides; Serena Ng
The non-negativity constraint on inventories imposed on the rational expectations theory of speculative storage implies that the conditional mean and variance of commodity prices are non-linear in lagged prices and have a kink at a threshold point. In this paper, the structural parameters of this model are estimated using three simulation-based estimators. In a Monte Carlo experiment, the finite sample properties of the simulated methods of moments estimator of Duffie and Singleton (1993, Econometrica 61 (4), 929–952) the indirect inference estimator of Gourieroux et al. (1993, Journal of Applied Economterics 8, S85–S118) and the efficient method of moments estimator of Gallant and Tauchen (1996, Econometric Theory 12, 657–681) are assessed. Exploiting the invariant distribution implied by the theory allows us to evaluate the error induced by simulations. Our results show that the estimators differ in their sensitivity to the sample size, the number of simulations, choice of auxiliary models, and computation demands. For some estimators, the test for overidentifying restrictions exhibit significant size distortions in small samples. Overall, while the simulation estimators have small bias, they are less efficient than pseudo-maximum likelihood (PMLE). Hence for the small sample sizes considered, the simulation estimators are still inferior to the PMLE estimates in a mean-squared sense.
Review of Financial Studies | 2011
Joachim Inkmann; Paula Lopes; Alexander Michaelides
Using UK microeconomic data, we analyze the empirical determinants of voluntary annuity market demand. We find that annuity market participation increases with financial wealth, life expectancy and education and decreases with other pension income and a possible bequest motive for surviving spouses. We then show that these empirically-motivated determinants of annuity market participation have the same, quantitatively important, effects in a life-cycle model of annuity and life insurance demand, saving and portfolio choice. Moreover, reasonable preference parameters predict annuity demand levels comparable to the data. For stockholders, a relatively strong bequest motive is sufficient to simultaneously generate balanced portfolios and low annuity demand.
Review of Economic Dynamics | 2003
Francisco Gomes; Alexander Michaelides
Motivated by the success of internal habit formation preferences in explaining asset pricing puzzles, we introduce these preferences in a life-cycle model of consumption and portfolio choice with liquidity constraints, undiversifiable labor income risk and stock-market participation costs. In contrast to the initial motivation, we find that the model is not able to simultaneously match two very important stylized facts: a low stock market participation rate, and moderate equity holdings for those households that do invest in stocks. Habit formation increases wealth accumulation because the intertemporal consumption smoothing motive is stronger. As a result, households start participating in the stock market very early in life, and invest their portfolios almost fully in stocks. Therefore, we conclude that, with respect to its ability to match the empirical evidence on asset allocation behavior, the internal habit formation model is dominated by its time-separable utility counterpart. (Copyright: Elsevier)
Journal of Risk and Insurance | 2012
Joachim Inkmann; Alexander Michaelides
Using U.K. microeconomic data, we analyze the empirical determinants of participation in the life insurance market. We find that term insurance demand is positively correlated with measures of bequest motives like being married, having children and/or subjective measures of strong bequest motives. We then show that a life-cycle model of life insurance demand, saving and portfolio choice can rationalize quantitatively the data in the presence of a bequest motive. These findings provide evidence supporting the presence of a bequest motive.
Economics Letters | 2001
Sarantis Kalyvitis; Alexander Michaelides
Abstract We examine the impact of US monetary policy shocks on exchange rates using the monetary policy indicator proposed by Bernanke and Mihov [Quarterly Journal of Economics, 113 (1998) 869–902]. We find evidence for instantaneous, rather than delayed, US dollar overshooting after a monetary shock when relative output and relative prices are included in the VAR specification. The forward premium puzzle persists due to the interest rate differential response.
The Review of Economics and Statistics | 2010
Charles Grant; Christos Koulovatianos; Alexander Michaelides; Mario Padula
If households face uninsurable idiosyncratic earnings risk, theory predicts that redistributive tax and transfer systems have both an insurance and a distortionary effect. Exploiting the substantial variation of tax and transfer systems across U.S. states and over time, we investigate the necessary traces of these two effects in the data: that state-level measures of redistributive taxation should correlate negatively with the standard deviation and the mean of the within-state consumption distribution. We find that the first correlation is robust, supporting strongly the presence of an insurance effect. The distortionary effect can also be detected in the data, but it is less precisely estimated.
Social Science Research Network | 2002
Alexander Michaelides
This paper investigates whether an infinite horizons buffer stock saving model with internal, multiplicative, habit formation preferences can replicate the macroeconomic stylized facts about consumption expenditures on non-durables and services. Individual consumption smoothing and consumption sensitivity to lagged earnings induced by habit formation survive the numerical aggregation procedure replicating in magnitude the observed smoothness of aggregate non-durables consumption growth and the sensitivity of current consumption growth to lagged labor income growth. Nevertheless, this empirical success is associated with substantial wealth accumulation. To the extent, therefore, that the buffer stock model without habits adequately replicates the wealth accumulation profile of the median consumer, the proposed modification cannot jointly explain in magnitude the smoothness of consumption and its excess sensitivity to lagged labor income.
Economic Policy | 2014
Alexander Michaelides
This is a case study of how a country nearly reached bankruptcy in March 2013, within five years of entering the eurozone. The magnitude of the requested assistance is extremely large relative to GDP (100%) and studying this event provides useful lessons for avoiding such crises in the future. The crisis resulted from a worsening European economic environment (especially in Greece), bad choices with regards to public finances, weak corporate governance within the local banking sector, inadequate and/or difficult regulation of cross-border banking, worsening competitiveness, and bad political decisions at the European and, especially, the local (Cypriot) level. Local politics, reflected in short-term political calculations and/or inadequate understanding of the magnitude of the crisis, delayed corrective action for 18 months until election time, making a bad situation almost impossible to deal with. Overconfidence can be one behavioural explanation for why local politicians ignored the dramatic costs of inaction. — Alexander Michaelides
international conference on parallel processing | 2001
Ahmed Abdelkhalek; Angelos Bilas; Alexander Michaelides
In this paper we show how applications in computational economics can take advantage of modern parallel architectures to reduce the computation time in a wide array of models that have been, to date, computationally intractable. The specific application we use computes the optimal consumption and portfolio choice policy rules over the life-cycle of the individual. Our goal is two-fold: (i) To understand the behavior of a class of emerging applications and provide an efficient parallel implementation and (ii) to introduce a new benchmark for parallel computer architectures from an emerging and important class of applications. We start from an existing sequential algorithm for solving a portfolio choice model. We present a number of optimizations that result in highly optimized sequential code. We then present a parallel version of the application. We find that: (i) Emerging applications in this area of computational economics exhibit adequate parallelism to achieve, after a number of optimization steps, almost linear speedup for system sizes up to 64 processors. (ii) The main challenges in dealing with applications in this area are computational imbalances introduced by algorithmic dependencies and the parallelization method and granularity. (iii) We present preliminary results for a problem that has not been, to the best of our knowledge, solved in the financial economics literature to date.
Journal of Financial and Quantitative Analysis | 2017
Alexander Michaelides; Yuxin Zhang
We solve for optimal consumption and portfolio choice in a life-cycle model with short-sales and borrowing constraints, undiversifiable labor income risk and a predictable, time-varying, equity premium and show that the investor pursues aggressive market timing strategies. Importantly, in the presence of stock market predictability, the model suggests that the conventional financial advice of reducing stock market exposure as retirement approaches is correct on average, but ignoring changing market information can lead to substantial welfare losses. Therefore, enhanced target-date funds (ETDFs) that condition on expected equity premia increase welfare relative to target-date funds (TDFs).