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An Asset Allocation Puzzle

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  • Canner, Niko
  • Mankiw, N Gregory
  • Weil, David N

Abstract

This paper examines popular advice on portfolio allocation among cash, bonds, and stocks. It documents that this advice is inconsistent with the mutual-fund separation theorem, which states that all investors should hold the same composition of risky assets. In contrast to the theorem, popular advisors recommend that aggressive investors hold a lower ratio of bonds to stocks than conservative investors. The paper explores various possible explanations of this puzzle and finds them unsatisfactory. Copyright 1997 by American Economic Association.

Suggested Citation

  • Canner, Niko & Mankiw, N Gregory & Weil, David N, 1997. "An Asset Allocation Puzzle," American Economic Review, American Economic Association, vol. 87(1), pages 181-191, March.
    • Handle: RePEc:aea:aecrev:v:87:y:1997:i:1:p:181-91
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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