Chapter

Myopic Portfolio Choice

John Y. Campbell and Luis M. Viceira

in Strategic Asset Allocation

Published in print January 2002 | ISBN: 9780198296942
Published online November 2003 | e-ISBN: 9780191596049 | DOI: http://dx.doi.org/10.1093/0198296940.003.0002

Series: Clarendon Lectures in Economics

 Myopic Portfolio Choice

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Reviews the theory of portfolio choice for short‐term investors, and explains the special cases in which long‐term investors should make the same choices as short‐term investors. When investors’ relative risk aversion does not depend on their wealth, investment horizon is irrelevant for investors who have only financial wealth and who face constant investment opportunities. Even if investment opportunities are time‐varying, the investment horizon is still irrelevant for investors whose relative risk aversion equals one. However, there is strong empirical evidence that these conditions fail in various ways, thus allowing for legitimate arguments for horizon effects on portfolio choice.

Keywords: Epstein‐Zin utility; investment horizon; mean‐variance analysis; myopic portfolio choice; portfolio choice; risk aversion

Chapter.  11923 words.  Illustrated.

Subjects: Financial Markets

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