Beliefs Regarding Fundamental Value and Optimal Investing
نویسندگان
چکیده
We derive optimal portfolio weights for an investor who has specific beliefs regarding the distribution of a stock price at a future time. For example, a fundamental investor will want to take advantage of the information his analysis provides when constructing a portfolio. In this regard, we examine the optimal weights for models in which the investor believes that there is a range in which the price is likely to remain. Under such circumstances, the optimal strategy is to take significant long/short positions as the price nears its lower/upper boundary. The risk, expected stock return and the optimal investment strategy are thus dependent on the stock price relative to the boundaries.
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