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Long-Term Portfolio Management with a Structural Macroeconomic Model

Author

Listed:
  • Ludovic Cales

    (European Union - European Commission, Joint Research Centre)

  • Eric Jondeau

    (University of Lausanne and Swiss Finance Institute)

  • Michael Rockinger

    (University of Lausanne, Centre for Economic Policy Research (CEPR), and Swiss Finance Institute)

Abstract

The aim of this paper is to investigate long-term portfolio management in a fully structural macro-financial framework. First, we estimate a Dynamic Stochastic General Equilibrium (DSGE) model that describes the dynamic of the US economy and financial markets. In addition to the typical macro-economic variables, the model includes financial variables such as firm market values, dividend payments, and long-term government bond returns. The model provides us with long-term forecasts of key variables, which are used for the dynamic asset allocation of long-horizon investors. We show that the DSGE model outperforms an unrestricted VAR model in long-term portfolio allocation.

Suggested Citation

  • Ludovic Cales & Eric Jondeau & Michael Rockinger, 2013. "Long-Term Portfolio Management with a Structural Macroeconomic Model," Swiss Finance Institute Research Paper Series 13-45, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1345
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    File URL: http://ssrn.com/abstract=2325291
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    More about this item

    Keywords

    Long-Term Asset Management; Dynamic Allocation; Pension Fund; DSGE Model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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