Consumption And Portfolio Decisions When Expected Returns Are Time Varying PDF Download
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| Author | : John Y. Campbell |
| Publisher | : |
| Total Pages | : 88 |
| Release | : 1996 |
| Genre | : Consumption (Economics) |
| ISBN | : |
Download Consumption and Portfolio Decisions when Expected Returns are Time Varying Book in PDF, ePub and Kindle
This paper proposes and implements a new approach to a classic unsolved problem in financial economics: the optimal consumption and portfolio choice problem of a long-lived investor facing time-varying investment opportunities. The investor is assumed to be infinitely-lived, to have recursive Epstein-Zin-Weil utility, and to choose in discrete time between a riskless asset with a constant return, and a risky asset with constant return variance whose expected log return follows and AR(1) process. The paper approximates the choice problem by log-linearizing the budget constraint and Euler equations, and derives an analytical solution to the approximate problem. When the model is calibrated to US stock market data it implies that intertemporal hedging motives greatly increase, and may even double, the average demand for stocks by investors whose risk-aversion coefficients exceed one.
| Author | : John Y. Campbell |
| Publisher | : OUP Oxford |
| Total Pages | : 272 |
| Release | : 2002-01-03 |
| Genre | : Business & Economics |
| ISBN | : 019160691X |
Download Strategic Asset Allocation Book in PDF, ePub and Kindle
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
| Author | : John Y. Campbell |
| Publisher | : |
| Total Pages | : 46 |
| Release | : 1998 |
| Genre | : |
| ISBN | : |
Download Consumption and Portfolio Decisions when Expected Returns are Time Varyng? Book in PDF, ePub and Kindle
| Author | : George Chacko |
| Publisher | : |
| Total Pages | : |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
Download Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets Book in PDF, ePub and Kindle
This paper examines the optimal consumption and portfolio-choice problem of long-horizon investors who have access to a riskless asset with constant return and a risky asset (quot;stocksquot;) with constant expected return and time-varying precision-the reciprocal of volatility. Markets are incomplete, and investors have recursive preferences defined over intermediate consumption. The paper obtains a solution to this problem which is exact for investors with unit elasticity of intertemporal substitution of consumption and approximate otherwise. The optimal portfolio demand for stocks includes an intertemporal hedging component that is negative when investors have coefficients of relative risk aversion larger than one, and the instantaneous correlation between volatility and stock returns is negative, as typically estimated from stock return data. Our estimates of the joint process for stock returns and precision (or volatility) using U.S. data confirm this finding. But we also find that stock return volatility does not appear to be variable and persistent enough to generate large intertemporal hedging demands.
| Author | : John H. Cochrane |
| Publisher | : Now Publishers Inc |
| Total Pages | : 117 |
| Release | : 2005 |
| Genre | : Business & Economics |
| ISBN | : 1933019158 |
Download Financial Markets and the Real Economy Book in PDF, ePub and Kindle
Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
| Author | : Robert A. Jarrow |
| Publisher | : |
| Total Pages | : 472 |
| Release | : 1998 |
| Genre | : Derivative securities |
| ISBN | : |
Download Volatility Book in PDF, ePub and Kindle
Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
| Author | : Carl Chiarella |
| Publisher | : Springer |
| Total Pages | : 203 |
| Release | : 2016-09-01 |
| Genre | : Business & Economics |
| ISBN | : 3662492296 |
Download Sustainable Asset Accumulation and Dynamic Portfolio Decisions Book in PDF, ePub and Kindle
This book examines sustainable wealth formation and dynamic decision-making. The global economy experienced a veritable meltdown of asset markets in the years 2007-9, where many funds were overexposed to risky returns and suffered considerable losses. On the other hand, the long-term upswing in the stock market since 2010 has led to asset price booms and some new, but also uneven, wealth formation. In this book a broader set of constraints and guidelines for asset management and wealth accumulation is developed. The authors investigate how wealth formation and the proper management of financial funds can help to adequately buffer income risk and obtain sufficient risk-free income at a later stage of life, while also being socially and environmentally sustainable. The book explores behavioral and institutional rules for decision-making that reflect such constraints and guidelines, without necessarily being optimal in the narrow sense. The authors explain the need for such a dynamic decision-making and dynamic re-balancing of portfolios, by putting forward dynamic programming as an approach to dynamic decision-making that can allow sustainable wealth accumulation and dynamic asset allocation to be successfully integrated. This book provides a clear and comprehensive treatment of asset accumulation and dynamic portfolio models with an emphasis on long term and sustainable wealth formation. An important concern in public debate is the sustainability of our economy and this book employs cutting edge quantitative techniques and models to highlight important facts that cannot be disputed under any reasonable assumptions. It has the potential to become a standard reference for both academic researchers and quantitatively trained practitioners. Eckhard Platen, Professor of Quantitative Finance, University of Technology Sydney, Australia This book should be read by both academics and practitioners alike. The former will find intellectually rigorous discussions and innovative solutions. The latter may find a few of the concepts a bit challenging. Yet, theory and technology are there to help simplify the work of those who worry about what time it is rather than how to make a watch--- but they do need a watch. Jean Brunel, Founder of Brunel Associates and Editor of The Journal of Wealth Management
| Author | : Felix Hentschel |
| Publisher | : |
| Total Pages | : 27 |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Download Optimal Consumption and Investment Decisions Under Time-Varying Risk Attitudes Book in PDF, ePub and Kindle
When finding the optimal consumption and investment decision rules of an individual, accounting for a change in the risk aversion over the life cycle is an important aspect. Different methods are suggested in the literature. This paper combines the two approaches of including a habit level (see e.g. Constantinides, 1990) and a coefficient of time-varying risk aversion (see e.g. Steffensen, 2011). The optimal decision rules are derived in a complete market and examined in a numerical analysis.Our findings show that with a coefficient of time-varying risk aversion, the shape of the decision rules, rather than just their magnitude, depends on the initial wealth of the individual. Furthermore, a time-increasing risk aversion and sufficiently large habit formation lead to a hump-shaped consumption pattern and a decreasing investment into the risky asset, as observed in the literature.
| Author | : Leonard C Maclean |
| Publisher | : World Scientific |
| Total Pages | : 941 |
| Release | : 2013-05-10 |
| Genre | : Business & Economics |
| ISBN | : 981441736X |
Download Handbook Of The Fundamentals Of Financial Decision Making (In 2 Parts) Book in PDF, ePub and Kindle
This handbook in two parts covers key topics of the theory of financial decision making. Some of the papers discuss real applications or case studies as well. There are a number of new papers that have never been published before especially in Part II.Part I is concerned with Decision Making Under Uncertainty. This includes subsections on Arbitrage, Utility Theory, Risk Aversion and Static Portfolio Theory, and Stochastic Dominance. Part II is concerned with Dynamic Modeling that is the transition for static decision making to multiperiod decision making. The analysis starts with Risk Measures and then discusses Dynamic Portfolio Theory, Tactical Asset Allocation and Asset-Liability Management Using Utility and Goal Based Consumption-Investment Decision Models.A comprehensive set of problems both computational and review and mind expanding with many unsolved problems are in an accompanying problems book. The handbook plus the book of problems form a very strong set of materials for PhD and Masters courses both as the main or as supplementary text in finance theory, financial decision making and portfolio theory. For researchers, it is a valuable resource being an up to date treatment of topics in the classic books on these topics by Johnathan Ingersoll in 1988, and William Ziemba and Raymond Vickson in 1975 (updated 2nd edition published in 2006).
| Author | : Richard Hinz |
| Publisher | : World Bank Publications |
| Total Pages | : 300 |
| Release | : 2010-01-14 |
| Genre | : Business & Economics |
| ISBN | : 0821381601 |
Download Evaluating the Financial Performance of Pension Funds Book in PDF, ePub and Kindle
Countries around the world are increasingly relying on individual pension savings accounts to provide income in old age for their citizens. Although these funds have now been in place for several decades, their performance is usually measured using methods that are not meaningful in relation to this long-term objective. The recent global financial crisis has highlighted the need to develop better performance evaluation methods that are consistent with the retirement income objective of pension funds. Compiling research derived from a partnership among the World Bank, the Organisation for Economic Co-operation and Development (OECD), and three private partners, 'Evaluating the Financial Performance of Pension Funds' discusses the theoretical basis and key implementation issues related to the design of performance benchmarks based on life-cycle savings and investment principles. The book begins with an evaluation of the financial performance of funded pension systems using the standard mean variance framework. It then provides a discussion of the limitations inherent to applying these methods to pension funds and outlines the many other issues that should be addressed in developing more useful and meaningful performance measures through the formulation of pension-specific benchmark portfolios. Practical implementation issues are addressed through empirical examples of how such benchmarks could be developed. The book concludes with commentary and observations from several noted pension experts about the need for a new approach to performance measurement and the impact of the recent global financial crisis on pension funds.
