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Strategic Asset Allocation, Asset Price Dynamics, and the Business Cycle

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  • Ivan Jaccard

    (Wharton School of Finance)

Abstract

The main contribution of this work is to provide a dynamic general equilibrium model of asset allocation, allowing to reconcile economic theory with several puzzling contradictions recently pointed out in the literature: (i) the asset allocation puzzle, (ii) the observed timevariation in aggregate portfolio holdings and (iii) the occurrence of twin peaks in equity and house prices. In this approach, compared to the existing literature, the main difference stems from the fact that, in addition to consumption and dividends, both prices and portfolio decisions are allowed to be endogenously determined within a general equilibrium framework. Secondly, real estate is introduced into the analysis, labor supply is allowed to be endogenously determined and macroeconomic shocks are the main source of riskiness.

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Bibliographic Info

Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 07-19.

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Length: 33 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:chf:rpseri:rp0719

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Web page: http://www.SwissFinanceInstitute.ch
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Keywords: Strategic Asset Allocation; House Prices;

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  1. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  2. Michel Normandin & Pascal St-Amour, 2005. "An Empirical Analysis of U.S. Aggregate Portfolio Allocations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 05.03, Université de Lausanne, Faculté des HEC, DEEP.
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