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An Empirical Analysis of U.S. Aggregate Portfolio Allocations

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  • Michel Normandin
  • Pascal St-Amour

Abstract

This paper analyzes the important time variation in U.S. aggregate portfolio allocations. To do so, we first use flexible descriptions of preferences and investment opportunities to derive optimal decision rules that nest tactical, myopic, and strategic portfolio allocations. We then compare these rules to the data through formal statistical analysis. Our main results reveal that i) purely tactical and myopic investment behaviors are unambiguously rejected, ii) strategic portfolio allocations are strongly supported, and iii) the Fama-French factors best explain empirical portfolio shares. Ce papier analyse la forte variation chronologique dans les portefeuilles agrégés américains. À cet effet, nous utilisons des descriptions flexibles des préférences et des opportunités d'investissement afin de dériver les allocations tactiques, myopes et stratégiques. Ces règles sont ensuite comparées aux données dans le cadre d'une analyse statistique formelle. Nos principaux résultats révèlent que i) les règles purement myopes ou tactiques sont rejetées, ii) les portefeuilles stratégiques sont supportés et iii) les facteurs Fama-French sont ceux qui reproduisent le mieux les allocations empiriques.

Suggested Citation

  • Michel Normandin & Pascal St-Amour, 2005. "An Empirical Analysis of U.S. Aggregate Portfolio Allocations," CIRANO Working Papers 2005s-07, CIRANO.
    • Handle: RePEc:cir:cirwor:2005s-07
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    File URL: https://cirano.qc.ca/files/publications/2005s-07.pdf
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    References listed on IDEAS

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    1. Wayne E. Ferson & Campbell R. Harvey, 1999. "Conditioning Variables and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 54(4), pages 1325-1360, August.
    2. John Y. Campbell & Yeung Lewis Chanb & M. Viceira, 2013. "A multivariate model of strategic asset allocation," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part II, chapter 39, pages 809-848, World Scientific Publishing Co. Pte. Ltd..
    3. Philippe Weil, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(1), pages 29-42.
    4. repec:fth:harver:1421 is not listed on IDEAS
    5. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    6. Alberto Giovannini & Philippe Weil, 1989. "Risk Aversion and Intertemporal Substitution in the Capital Asset Pricing Model," NBER Working Papers 2824, National Bureau of Economic Research, Inc.
    7. Michel Normandin & Pascal St–Amour, 2002. "Canadian consumption and portfolio shares," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 35(4), pages 737-756, November.
    8. Michel Normandin & Pascal St-Amour, 2002. "Canadian consumption and portfolio shares," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 737-756, November.
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    11. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
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    Cited by:

    1. Ivan Jaccard, 2006. "Strategic Asset Allocation, Asset Price Dynamics, and the Business Cycle," 2006 Meeting Papers 574, Society for Economic Dynamics.
    2. Didier, Tatiana & Lowenkron, Alexandre, 2012. "The current account as a dynamic portfolio choice problem," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 518-541.

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    More about this item

    Keywords

    factorial models of returns; myopic and strategic; non-expected utility; tactical portfolio allocations ; modèles factoriels des rendements; myopes et stratégiques; portefeuilles tactiques; utilité non espérée;
    All these keywords.

    JEL classification:

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

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