Learning About Predictability : The Effects of Parameter Uncertainty on Dynamic Asset Allocation  

Oleh:

Yihong, Xia

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 56 no. 1 (2001), page 205-246.
Topik: predictability; rates of return; stock; portfolio management; hedging; stochastic models; studies
Fulltext: p 205.pdf (367.12KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Conventional wisdom says that a long - horizon investor should invest more in equity because, over long horizons, above - average returns tend to offset below - average returns. This is the notion of "time diversification." This paper examines the effects of uncertainty about the stock return predictability on optimal dynamic portfolio choice in a continuous time setting for a long-horizon investor. Uncertainty about the predictive relation affects the optimal portfolio choice through dynamic learning, and leads to a state - dependent relation between the optimal portfolio choice and the investment horizon. There is substantial market timing in the optimal hedge demands, which is caused by stochastic covariance between stock return and dynamic learning. The opportunity cost of ignoring predictability or learning is found to be quite substantial

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