Consumption and Portfolio Decisions When Expected Returns are Time Varying

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Consumption and Portfolio Decisions When Expected Returns are Time Varying

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Title: Consumption and Portfolio Decisions When Expected Returns are Time Varying
Author: Campbell, John; Viceira, Luis

Note: Order does not necessarily reflect citation order of authors.

Citation: Campbell, John Y., and Luis M. Viceira. 1999. Consumption and portfolio decisions when expected returns are time varying. Quarterly Journal of Economics 114(2): 433-495.
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Abstract: This paper presents an approximate analytical solution to the optimal consumption and portfolio choice problem of an infinitely lived investor with Epstein-Zin-Weil utility who faces a constant riskless interest rate and a time-varying equity premium. When the model is calibrated to U. S. 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. The optimal portfolio policy also involves timing the stock market. Failure to time or to hedge can cause large welfare losses relative to the optimal policy.
Published Version: http://dx.doi.org/10.1162/003355399556043
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:3163266

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  • FAS Scholarly Articles [6466]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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