Advanced Search
MyIDEAS: Login

Empirical Evaluation of Investor Rationality in the Asset Allocation Puzzle

Contents:

Author Info

  • Oussama Chakroun
  • Georges Dionne
  • Amélie Dugas-Sampara

Abstract

We examine the portfolio-choice puzzle posed by Canner, Mankiw, and Weil (1997). The idea is to test a conclusion reached by Elton and Gruber (2000), stating that a bonds/stocks ratio which decreases in relation to risk tolerance does not necessarily mean a contradiction of modern portfolio-choice theory and does not cast doubt on the rationality of investors. From data on the portfolio composition of 470 clients of a Canadian brokerage firm, we obtain that the bonds/stocks ratio does decrease in relation to risk tolerance. We also verify the existence of the two-fund separation theorem in the assets data available to the investors in our sample.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2006/CIRPEE06-35.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 0635.

as in new window
Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:lvl:lacicr:0635

Contact details of provider:
Postal: CP 8888, succursale Centre-Ville, Montréal, QC H3C 3P8
Phone: (514) 987-8161
Web page: http://www.cirpee.org/
More information through EDIRC

Related research

Keywords: Investor rationality; asset allocation puzzle; risk tolerance; separation theorem; bonds/stocks ratio;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Kilian, Lutz & Demiroglu, Ufuk, 2000. "Residual-Based Tests for Normality in Autoregressions: Asymptotic Theory and Simulation Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 40-50, January.
  2. Richard H. Thaler & Shlomo Benartzi, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March.
  3. Owen, Joel & Rabinovitch, Ramon, 1983. " On the Class of Elliptical Distributions and Their Applications to the Theory of Portfolio Choice," Journal of Finance, American Finance Association, vol. 38(3), pages 745-52, June.
  4. Glenn Boyle & Graeme Guthrie, 2005. "Human Capital and Popular Investment Advice," Review of Finance, Springer, vol. 9(2), pages 139-164, 06.
  5. Viceira, Luis & Campbell, John, 2001. "Who Should Buy Long-Term Bonds?," Scholarly Articles 3128709, Harvard University Department of Economics.
  6. Haim Shalit & Shlomo Yitzhaki, 2003. "An Asset Allocation Puzzle: Comment," American Economic Review, American Economic Association, vol. 93(3), pages 1002-1008, June.
  7. Canner, Niko & Mankiw, N Gregory & Weil, David N, 1997. "An Asset Allocation Puzzle," American Economic Review, American Economic Association, vol. 87(1), pages 181-91, March.
  8. Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March.
  9. Jarrow, Robert A, 1980. " Heterogeneous Expectations, Restrictions on Short Sales, and Equilibrium Asset Prices," Journal of Finance, American Finance Association, vol. 35(5), pages 1105-13, December.
  10. Michael J. Brennan & Yihong Xia, 2002. "Dynamic Asset Allocation under Inflation," Journal of Finance, American Finance Association, vol. 57(3), pages 1201-1238, 06.
  11. Olivier Scaillet & Laurent Barras & Russell R. Wermers, 2005. "False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas," Working Papers CEB 05-014.RS, ULB -- Universite Libre de Bruxelles.
  12. DUFOUR, Jean-Marie & KHALAF, Lynda & BEAULIEU, Marie-Claude, 2003. "Exact Skewness-Kurtosis Tests for Multivariate Normality and Goodness-of-fit in Multivariate Regressions with Application to Asset Pricing Models," Cahiers de recherche 2003-09, Universite de Montreal, Departement de sciences economiques.
  13. Jones, Charles M. & Lamont, Owen A., 2002. "Short-sale constraints and stock returns," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 207-239.
  14. Elton, Edwin J. & Gruber, Martin J., 2000. "The Rationality of Asset Allocation Recommendations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(01), pages 27-41, March.
  15. Siebenmorgen, Niklas & Weber, Martin, 2000. "A Behavioral Approach to the Asset Allocation Puzzle," Sonderforschungsbereich 504 Publications 00-46, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  16. Wachter, Jessica A., 2003. "Risk aversion and allocation to long-term bonds," Journal of Economic Theory, Elsevier, vol. 112(2), pages 325-333, October.
  17. Isabelle Bajeux-Besnainou & James V. Jordan & Roland Portait, 2001. "An Asset Allocation Puzzle: Comment," American Economic Review, American Economic Association, vol. 91(4), pages 1170-1179, September.
  18. Isabelle Bajeux-Besnainou & James V. Jordan & Roland Portait, 2003. "Dynamic Asset Allocation for Stocks, Bonds, and Cash," The Journal of Business, University of Chicago Press, vol. 76(2), pages 263-288, April.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:lvl:lacicr:0635. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanne Perron).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.