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Dynamic Asset Allocation for Stocks, Bonds, and Cash

Listed author(s):
  • Isabelle Bajeux-Besnainou

    (George Washington University)

  • James V. Jordan

    (National Economic Research Associates)

  • Roland Portait

    (CNAM and ESSEC)

Registered author(s):

    Closed-form solutions for HARA optimal portfolios are obtained in a dynamic portfolio optimization model in three assets (stocks, bonds, and cash) in a Vasicek-type model of stochastic interest rates with correlated stock prices. The HARA is a buy-and-hold combination of a zero-coupon bond with maturity matching the investor's horizon and a "CRRA mutual fund." This simple characterization facilitates insights about investor behavior over time and provides explanations on the rational use of convex versus concave investment strategies. The model illuminates clearly the role of the different market parameters and relative risk aversion in portfolio strategies.

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    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 76 (2003)
    Issue (Month): 2 (April)
    Pages: 263-288

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    Handle: RePEc:ucp:jnlbus:v:76:y:2003:i:2:p:263-288
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