Strategic Asset Allocation

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ID: 295751
2002
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Abstract
Abstract One of the most important decisions many people face is the choice of a portfolio of assets for retirement savings. The leading academic paradigm of portfolio choice, the mean‐variance analysis of Markowitz, does not give adequate guidance for this long‐term investment problem because it assumes that investors care only about the mean and variance of return over a single short period. The book develops an alternative paradigm, the inter‐temporal model of Merton, into an empirically usable framework with the following implications. The safe asset for a long‐term investor is not a Treasury bill, but a long‐term inflation‐indexed bond that provides a stable stream of real income. A nominal bond is a good substitute for an inflation‐indexed bond only if inflation risk is low. There is evidence that stock returns are mean‐reverting, with bull markets tending to follow bear markets and vice versa; this suggests that long‐term investors should increase their average stockholdings but should also vary their stockholdings with the overall level of the stock market. Investors with a stable stream of labour income can afford a greater exposure to stock market risk.
Reference Key
openalex_W2291688673 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors John Y. Campbell, Luis M. Viceira
Journal Oxford University Press eBooks
Year 2002
DOI
10.1093/0198296940.001.0001
URL
https://doi.org/10.1093/0198296940.001.0001
Keywords Keywords not found

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