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An Empirical Analysis of U.S. Aggregate Portfolio Allocations

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  • Michel Normandin
  • Pascal St-Amour

Abstract

This paper analyzes the important time variation in U.S. aggregate portfolio allocations. To do so, we first use flexible descriptions of preferences and investment opportunities to derive optimal decision rules that nest tactical, myopic, and strategic portfolio allocations. We then compare these rules to the data through formal statistical analysis. Our main results reveal that i) purely tactical and myopic investment behaviors are unambiguously rejected, ii) strategic portfolio allocations are strongly supported, and iii) the Fama-French factors best explain empirical portfolio shares.

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Bibliographic Info

Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 05.03.

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Length: 31 pages
Date of creation: Mar 2005
Date of revision:
Publication status: Published under the title "An Empirical Analysis of Aggregate Household Portfolios", in: Journal of Banking and Finance , 32(8), August 2008, pp.1583-1597
Handle: RePEc:lau:crdeep:05.03

Contact details of provider:
Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.05
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Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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Keywords: portfolio; factorial pricing; dynamic hedging;

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References

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  1. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  2. Michel Normandin & Pascal St-Amour, 2001. "Canadian Consumption and Portfolio Shares," Cahiers de recherche CREFE / CREFE Working Papers 134, CREFE, Université du Québec à Montréal.
  3. Viceira, Luis & Campbell, John, 1999. "Consumption and Portfolio Decisions When Expected Returns are Time Varying," Scholarly Articles 3163266, Harvard University Department of Economics.
  4. Campbell, John Y & Chan, Yeung Lewis & Viceira, Luis M, 2001. "A Multivariate Model of Strategic Asset Allocation," CEPR Discussion Papers 3070, C.E.P.R. Discussion Papers.
  5. Weil, Philippe, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 29-42, February.
  6. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  7. Campbell, John Y. & Koo, Hyeng Keun, 1997. "A comparison of numerical and analytic approximate solutions to an intertemporal consumption choice problem," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 273-295.
  8. Wayne E. Ferson & Campbell R. Harvey, 1999. "Conditioning Variables and the Cross-Section of Stock Returns," NBER Working Papers 7009, National Bureau of Economic Research, Inc.
  9. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
  10. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
  11. Alberto Giovannini & Philippe Weil, 1989. "Risk Aversion and Intertemporal Substitution in the Capital Asset Pricing Model," NBER Working Papers 2824, National Bureau of Economic Research, Inc.
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Cited by:
  1. Ivan Jaccard, 2006. "Strategic Asset Allocation, Asset Price Dynamics, and the Business Cycle," 2006 Meeting Papers 574, Society for Economic Dynamics.
  2. Didier, Tatiana & Lowenkron, Alexandre, 2009. "The current account as a dynamic portfolio choice problem," Policy Research Working Paper Series 4861, The World Bank.

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