Three Essays On Asset Pricing And Portfolio Allocation PDF Download

We analyze the joint problem of optimal investing and contribution decisions, when there is disutility associated with contributions. Interestingly, we find that the optimal portfolio decision often looks like a ``risky gambling" strategy where the pension sponsor increases the pension plan's allocation to risky assets in bad states. This is very different from the traditional prediction, where in economy downturns the pension sponsor should fully switch to the risk-free portfolio. Our solution method involves a separation of the pension sponsor's problem into a utility maximization problem and a disutility minimization one.