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Age dependent portfolio selection

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  • Peter S. Yoo
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    Abstract

    This paper addresses the issue of portfolio risk exposure as a function of age, and it focuses the debate by presenting detailed cross-sectional evidence about individual portfolios. It provides new empirical results that characterized the relationship between age and the risk exposure of individual portfolios. The evidence from cross-sectional data suggests that individuals do not follow behavior proscribed by economic theory or by Wall Street advisors, rather the results of this paper suggest that current body of theoretical literature does not adequately describe the behavior of individuals. It implies that a satisfactory model ofindividual behavior needs to focus on factors not linearly correlated with age.

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    File URL: http://research.stlouisfed.org/wp/more/1994-003/
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    File URL: http://research.stlouisfed.org/wp/1994/94-003.pdf
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1994-003.

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    Date of creation: 1994
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    Handle: RePEc:fip:fedlwp:1994-003

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    Keywords: Demography ; Saving and investment;

    References

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    1. Blume, Marshall E & Friend, Irwin, 1975. "The Asset Structure of Individual Portfolios and Some Implications for Utility Functions," Journal of Finance, American Finance Association, American Finance Association, vol. 30(2), pages 585-603, May.
    2. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 16(3-4), pages 427-449.
    3. King, M A & Dicks-Mireaux, L-D L, 1982. "Asset Holdings and the Life-Cycle," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(366), pages 247-67, June.
    4. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(2), pages 246-73, April.
    5. James M. Poterba & Lawrence H. Summers, 1987. "Mean Reversion in Stock Prices: Evidence and Implications," NBER Working Papers 2343, National Bureau of Economic Research, Inc.
    6. Conrad, Jennifer & Kaul, Gautam, 1993. " Long-Term Market Overreaction or Biases in Computed Returns?," Journal of Finance, American Finance Association, American Finance Association, vol. 48(1), pages 39-63, March.
    7. Morin, Roger A & Fernandez Suarez, Antonio, 1983. " Risk Aversion Revisited," Journal of Finance, American Finance Association, American Finance Association, vol. 38(4), pages 1201-16, September.
    8. Myung Jig Kim & Charles R. Nelson & Richard Startz, 1988. "Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence," NBER Working Papers 2795, National Bureau of Economic Research, Inc.
    9. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
    10. Shorrocks, A F, 1975. "The Age-Wealth Relationship: A Cross-Section and Cohort Analysis," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 155-63, May.
    11. Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1.
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    Cited by:
    1. James Poterba, 2004. "The Impact of Population Aging on Financial Markets," NBER Working Papers 10851, National Bureau of Economic Research, Inc.
    2. Andrew Ang & Angela Maddaloni, 2005. "Do Demographic Changes Affect Risk Premiums? Evidence from International Data," The Journal of Business, University of Chicago Press, vol. 78(1), pages 341-380, January.
    3. Zvi Bodie & J�r�me Detemple & Marcel Rindisbacher, 2009. "Life-Cycle Finance and the Design of Pension Plans," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 249-286, November.
    4. Jamal, A. M. M. & Quayes, Shakil, 2004. "Demographic structure and stock prices," Economics Letters, Elsevier, vol. 84(2), pages 211-215, August.
    5. Summers, Barbara & Duxbury, Darren & Hudson, Robert & Keasey, Kevin, 2006. "As time goes by: An investigation of how asset allocation varies with investor age," Economics Letters, Elsevier, vol. 91(2), pages 210-214, May.
    6. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance, EconWPA 0305011, EconWPA.

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