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Dynamic consumption and portfolio choice with permanent learning

Listed author(s):
  • Lee, Hyun-Tak
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    This paper studies a continuous–time intertemporal consumption and portfolio choice problem when a long–horizon investor who has recursive preferences cannot exactly observe the expected returns of the risky asset. I contribute to belief–behavior solutions to the explicit log-utility case, and to the approximate unit-risk-aversion case. I show explicitly that her belief behavior depends on the parameters of investment opportunities and investor preferences.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1544612316301131
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    Article provided by Elsevier in its journal Finance Research Letters.

    Volume (Year): 19 (2016)
    Issue (Month): C ()
    Pages: 112-118

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    Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:112-118
    DOI: 10.1016/j.frl.2016.07.001
    Contact details of provider: Web page: http://www.elsevier.com/locate/frl

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    1. George Chacko & Luis M. Viceira, 2005. "Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1369-1402.
    2. Campbell, John Y. & Chacko, George & Rodriguez, Jorge & Viceira, Luis M., 2004. "Strategic asset allocation in a continuous-time VAR model," Journal of Economic Dynamics and Control, Elsevier, vol. 28(11), pages 2195-2214, October.
    3. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942.
    4. Duffie, Darrel & Lions, Pierre-Louis, 1992. "PDE solutions of stochastic differential utility," Journal of Mathematical Economics, Elsevier, vol. 21(6), pages 577-606.
    5. Duffie, Darrell & Epstein, Larry G, 1992. "Stochastic Differential Utility," Econometrica, Econometric Society, vol. 60(2), pages 353-394, March.
    6. John H. Cochrane, 2008. "The Dog That Did Not Bark: A Defense of Return Predictability," Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1533-1575, July.
    7. Duffie, Darrell & Epstein, Larry G, 1992. "Asset Pricing with Stochastic Differential Utility," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 411-436.
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