Dynamic Asset Allocation under Mean-reverting Returns, Stochastic Interest Rates, and Inflation Uncertainty: Are Popular Recommendations Consistens with Rational Behavior?

Claus Munk, Carsten Sørensen*, Tina Nygaard

*Corresponding author af dette arbejde

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Abstrakt

This article provides the optimal asset allocation strategy of a power utility investor who can invest in cash (a bank account), nominal bonds, and stocks (the stock index) in a model that exhibits mean-reverting stock returns and real interest rate uncertainty. The capital market model is calibrated to U.S. stock, bond, and inflation data. Furthermore, to illustrate the optimal asset allocations, we perform a calibration exercise where risk aversion parameters and time horizons are fitted so as to obtain the best possible match to an observed investment recommendation for “aggressive,” “moderate,” and “conservative” investor groups with different investment horizons.
OriginalsprogEngelsk
TidsskriftInternational Review of Economics & Finance
Vol/bind13
Udgave nummer2
Sider (fra-til)141-166
Antal sider26
ISSN1059-0560
DOI
StatusUdgivet - 2004

Emneord

  • Porteføljeteori
  • Inflation
  • Investeringsrådgivning
  • Asset allocation

Citationsformater