Variable Selection for Portfolio Choice / Yacine Ait-Sahalia, Michael W. Brandt.

Format:

Book

Author/Creator:

Ait-Sahalia, Yacine.

Contributor:

National Bureau of Economic Research.

Brandt, Michael W.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8127.

NBER working paper series no. w8127

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

We study asset allocation when the conditional moments of returns are partly predictable. Rather than first model the return distribution and subsequently characterize the portfolio choice, we determine directly the dependence of the optimal portfolio weights on the predictive variables. We combine the predictors into a single index that best captures time-variations in investment opportunities. This index helps investors determine which economic variables they should track and, more importantly, in what combination. We consider investors with both expected utility (mean-variance and CRRA) and non-expected utility (ambiguity aversion and prospect theory) objectives and characterize their market-timing, horizon effects, and hedging demands.

Notes:

Print version record

February 2001.