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A multivariate model of strategic asset allocation

Authors Campbell, John Y.
Chan, Yeung Lewis HKUST affiliated (currently or previously).
Viceira, Luis M.
Issue Date 2003
Source Journal of financial economics , v. 67, (1), 2003, JAN, p. 41-80
Summary We develop an approximate solution method for the optimal consumption and portfolio choice problem of an infinitely long-lived investor with Epstein-Zin utility who faces a set of asset returns described by a vector autoregression in returns and state variables. Empirical estimates in long-run annual and post-war quarterly U.S. data suggest that the predictability of stock returns greatly increases the optimal demand for stocks. The role of nominal bonds in long-term portfolios depends on the importance of real interest rate risk relative to other sources of risk. Long-term intlation-indexed bonds greatly increase the utility of conservative investors. (C) 2002 Elsevier Science B.V. All rights reserved.
ISSN 0304-405X
Language English
Format Article
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