Consumption and Portfolio Decisions when Expected Returns are Time Varying

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ID: 297266
1999
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Abstract
This paper presents an approximate analytical solution to the optimal consumption and portfolio choice problem of an infinitely lived investor with Epstein-Zin-Weil utility who faces a constant riskless interest rate and a time-varying equity premium. When the model is calibrated to U. S. stock market data, it implies that intertemporal hedging motives greatly increase, and may even double, the average demand for stocks by investors whose risk-aversion coefficients exceed one. The optimal portfolio policy also involves timing the stock market. Failure to time or to hedge can cause large welfare losses relative to the optimal policy.
Reference Key
openalex_W3121378067 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors J. Y. Campbell, Luis M. Viceira
Journal the quarterly journal of economics
Year 1999
DOI
10.1162/003355399556043
URL
https://doi.org/10.1162/003355399556043
Keywords Keywords not found

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