Dynamic asset allocation with ambiguous return predictability

Dynamic asset allocation with ambiguous return predictability

We study an investor’s optimal consumption and portfolio choice problem when he confronts with two possibly misspecified submodels of stock returns: one with IID returns and the other with predictability. We adopt a generalized recursive ambiguity model to accommodate the investor’s aversion to model uncertainty. The investor deals with specification doubts by slanting his beliefs about submode...

Does Stock Return Predictability Imply Improved Asset Allocation and Performance?

Commodity Market Interest and Asset Return Predictability ∗

We establish several new findings on the relation between open interest in commodity markets and asset returns. High commodity market activity, as measured by high open-interest growth, predicts high commodity returns and low bond returns. Openinterest growth is a more powerful and robust predictor of commodity returns than other known predictors such as the short rate, the yield spread, the ba...

Stock-Return Predictability and Asset Pricing Models

The regression of stock returns on predictive variables, such as dividend yield, has proven useful in optimal portfolio selection when investment opportunities are timevarying. Conditional versions of factor models impose a restriction on that regression, thereby implying a particular portfolio choice. The study examines several pricing models from a perspective of conditional mean-variance opt...

Dynamic asset allocation techniques

Investment strategy is often static, punctuated by infrequent reviews. For most long-term investors, this practice results in large risks being taken that could otherwise be managed with a more dynamic investment policy. The bulk of this paper is aimed at analysing and describing two multi-period investment strategy problems – in order to derive potential dynamic strategies. Along the way, we s...