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Optimal asset allocation for Strategic Investors

Optimal asset allocation for Strategic Investors
Optimal asset allocation for Strategic Investors
This paper studies optimal asset allocation for investors over multiple investment horizons. Rather than first model the various features of the conditional return distribution and subsequently characterize the portfolio choice, we focus directly on the dependence of the portfolio weights on the predictor variables through a linear parametric portfolio policy rule. This characterization allows us to apply GMM estimation and testing methods to sample analogues of the multiperiod Euler equations that characterize our optimal portfolio choice. Our model accommodates an arbitrarily large number of assets in the portfolio and state variables in the information set. The empirical results for a portfolio of stocks, bonds and cash provide ample support to the linear specification of the portfolio weights and reveal significant dfferences between myopic (one-period) and strategic (long-term) optimal portfolio allocations.
0169-2070
970-987
Laborda, Ricardo
2bdeacea-069f-48ee-a898-a3a9ca486142
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
Laborda, Ricardo
2bdeacea-069f-48ee-a898-a3a9ca486142
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e

Laborda, Ricardo and Olmo, Jose (2017) Optimal asset allocation for Strategic Investors. International Journal of Forecasting, 33 (4), 970-987. (doi:10.1016/j.ijforecast.2017.05.003).

Record type: Article

Abstract

This paper studies optimal asset allocation for investors over multiple investment horizons. Rather than first model the various features of the conditional return distribution and subsequently characterize the portfolio choice, we focus directly on the dependence of the portfolio weights on the predictor variables through a linear parametric portfolio policy rule. This characterization allows us to apply GMM estimation and testing methods to sample analogues of the multiperiod Euler equations that characterize our optimal portfolio choice. Our model accommodates an arbitrarily large number of assets in the portfolio and state variables in the information set. The empirical results for a portfolio of stocks, bonds and cash provide ample support to the linear specification of the portfolio weights and reveal significant dfferences between myopic (one-period) and strategic (long-term) optimal portfolio allocations.

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Laborda Olmo IJF final - Accepted Manuscript
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More information

Accepted/In Press date: 18 May 2017
e-pub ahead of print date: 31 July 2017
Published date: October 2017
Organisations: Economics, Southampton Marine & Maritime Institute

Identifiers

Local EPrints ID: 411263
URI: http://eprints.soton.ac.uk/id/eprint/411263
ISSN: 0169-2070
PURE UUID: c992ccb9-38e3-4c3d-adf8-224c3f57bfb3
ORCID for Jose Olmo: ORCID iD orcid.org/0000-0002-0437-7812

Catalogue record

Date deposited: 16 Jun 2017 16:31
Last modified: 18 Feb 2021 17:21

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