Prospective utility and time-varying optimal asset allocation for the UK: 1803-1995
Prospective utility and time-varying optimal asset allocation for the UK: 1803-1995
The equity risk premium has attracted considerable debate and various proposed explanations. We re-examine one approach based on myopic loss aversion, while incorporating time variation in returns distributions. We identify optimal asset allocations across a two-century period for the UK, in the context of a range of plausible investment evaluation periods. We demonstrate that both the frequency of evaluation which achieves indifference between equities and bonds, and the optimal asset allocation profile, vary significantly over time. Although equities dominate for long periods, it is evident that periods of low inflation lead to the prominence of bonds in optimal allocations
95-110
McManus, I.
b9bbf976-aee7-4c44-88f3-4a8ab302612b
Ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
Thomas, S.
0f83004b-179e-4b71-8374-25345d0e9dad
July 2009
McManus, I.
b9bbf976-aee7-4c44-88f3-4a8ab302612b
Ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
Thomas, S.
0f83004b-179e-4b71-8374-25345d0e9dad
McManus, I., Ap Gwilym, Owain and Thomas, S.
(2009)
Prospective utility and time-varying optimal asset allocation for the UK: 1803-1995.
International Journal of Behavioural Accounting and Finance, 1 (2), .
(doi:10.1504/IJBAF.2009.027447).
Abstract
The equity risk premium has attracted considerable debate and various proposed explanations. We re-examine one approach based on myopic loss aversion, while incorporating time variation in returns distributions. We identify optimal asset allocations across a two-century period for the UK, in the context of a range of plausible investment evaluation periods. We demonstrate that both the frequency of evaluation which achieves indifference between equities and bonds, and the optimal asset allocation profile, vary significantly over time. Although equities dominate for long periods, it is evident that periods of low inflation lead to the prominence of bonds in optimal allocations
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Published date: July 2009
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Local EPrints ID: 155777
URI: http://eprints.soton.ac.uk/id/eprint/155777
PURE UUID: 775490aa-1d9b-4a12-be47-2154aa6b41d3
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Date deposited: 28 May 2010 12:48
Last modified: 14 Mar 2024 01:40
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Author:
I. McManus
Author:
Owain Ap Gwilym
Author:
S. Thomas
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