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Long term optimal investment with regime switching: inflation, information and short sales

Author

Listed:
  • Mondher Bellalah

    (Cy Cergy Paris University
    ISC Paris Business School)

  • Akeb Hakim

    (ISC Paris Business School)

  • Kehan Si

    (Shandong University)

  • Detao Zhang

    (Shandong University)

Abstract

Financial models are based on the standard assumptions of frictionless markets, complete information, no transaction costs and no taxes and borrowing and short selling without restrictions. Short-selling bans around the world after the global financial crisis and in several exchanges during the COVID 19 period, become more and more important. This paper bridges the gap by providing for the first time in the literature a model that accounting explicitly and simultaneously for inflation, information costs and short sales in the portfolio performance with regime switching. Our model can be used by portfolio managers to assess the impact of these market imperfections on portfolio decisions.

Suggested Citation

  • Mondher Bellalah & Akeb Hakim & Kehan Si & Detao Zhang, 2022. "Long term optimal investment with regime switching: inflation, information and short sales," Annals of Operations Research, Springer, vol. 313(2), pages 1373-1386, June.
    • Handle: RePEc:spr:annopr:v:313:y:2022:i:2:d:10.1007_s10479-020-03692-8
    DOI: 10.1007/s10479-020-03692-8
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    References listed on IDEAS

    as
    1. Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2010. "Entropy and the value of information for investors," Working Papers 2010-17, Brown University, Department of Economics.
    2. Mondher Bellalah, 1999. "Valuation of futures and commodity options with information costs," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(6), pages 645-664, September.
    3. Arturo Bris & William N. Goetzmann & Ning Zhu, 2007. "Efficiency and the Bear: Short Sales and Markets Around the World," Journal of Finance, American Finance Association, vol. 62(3), pages 1029-1079, June.
    4. Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2013. "Entropy and the Value of Information for Investors," American Economic Review, American Economic Association, vol. 103(1), pages 360-377, February.
    5. Massimo Massa, 2002. "Financial Innovation and Information: The Role of Derivatives When a Market for Information Exists," The Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 927-957.
    6. Alessandro Beber & Marco Pagano, 2013. "Short-Selling Bans Around the World: Evidence from the 2007–09 Crisis," Journal of Finance, American Finance Association, vol. 68(1), pages 343-381, February.
    7. Mondher Bellalah & Zhen Wu, 2009. "A simple model of corporate international investment under incomplete information and taxes," Annals of Operations Research, Springer, vol. 165(1), pages 123-143, January.
    8. Bartosz Mackowiak & Mirko Wiederholt, 2012. "Information Processing and Limited Liability," American Economic Review, American Economic Association, vol. 102(3), pages 30-34, May.
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    13. Wu, Chunchi & Li, Qiang & Weii, K C John, 1996. "Incomplete-Information Capital Market Equilibrium with Heterogeneous Expectations and Short Sale Restrictions," Review of Quantitative Finance and Accounting, Springer, vol. 7(2), pages 119-136, September.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Information costs; Short selling costs; Inflation rate; Regime switching;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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