Who Should Buy Long-Term Bonds?
| Title: | Who Should Buy Long-Term Bonds? |
| Author: |
Viceira, Luis; Campbell, John
Note: Order does not necessarily reflect citation order of authors. |
| Citation: | Campbell, John Y., and Luis M. Viceira. 2001. Who should buy long-term bonds? American Economic Review 91, no. 1: 99-127. |
| Full Text & Related Files: |
campbellssrn_long-termbonds.pdf (449.1Kb; PDF) 
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| Abstract: | According to conventional wisdom, long-term bonds are appropriate for conservative long-term investors. This paper develops a model of optimal consumption and portfolio choice for infinite-lived investors with recursive utility who face stochastic interest rates, solves the model using an approximate analytical method, and evaluates conventional wisdom. As risk aversion increases, the myopic component of risky asset demand disappears but the intertemporal hedging component does not. Conservative investors hold assets to hedge the risk that real interest rates will decline. Long-term inflation-indexed bonds are most suitable for this purpose, but nominal bonds may also be used if inflation risk is low. |
| Published Version: | http://dx.doi.org/10.1093/0198296940.003.0003 |
| Other Sources: | http://www.aeaweb.org/aer/contents/mar2001.html |
| Terms of Use: | This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA |
| Citable link to this page: | http://nrs.harvard.edu/urn-3:HUL.InstRepos:3128709 |
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