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A multivariate model of strategic asset allocation

Listed author(s):
  • Campbell, John Y.
  • Chan, Yeung Lewis
  • Viceira, Luis M.

We develop an approximate solution method for the optimal consumption and portfolio choice problem of an infinitely long-lived investor with Epstein–Zin utility who faces a set of asset returns described by a vector autoregression in returns and state variables. Empirical estimates in long-run annual and post-war quarterly U.S. data suggest that the predictability of stock returns greatly increases the optimal demand for stocks. The role of nominal bonds in long-term portfolios depends on the importance of real interest rate risk relative to other sources of risk. Long-term inflation-indexed bonds greatly increase the utility of conservative investors.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 67 (2003)
Issue (Month): 1 (January)
Pages: 41-80

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Handle: RePEc:eee:jfinec:v:67:y:2003:i:1:p:41-80
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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