Serial Correlation of Asset Returns and Optimal Portfolios for the Long and Short Term / Stanley Fischer, George Pennacchi.

Format:

Book

Author/Creator:

Fischer, Stanley.

Contributor:

National Bureau of Economic Research.

Pennacchi, George.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1625.

NBER working paper series no. w1625

Language:

English

Subjects (All):

Investments--Mathematical models.

Investments.

Portfolio management--Mathematical models.

Portfolio management.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1985.

Cambridge, Mass. : National Bureau of Economic Research, 1985.

Summary:

Optimal portfolios differ according to the length of time they are held without being rebalanced. For the case in which asset returns are identically and independently distributed, it has been shown that optimal portfolios become less diversified as the holding period lengthens.We show that the anti-diversification result does not obtain when asset returns are serially correlated, and examine properties of asymptotic portfolios for the case where the short term interest rate, although known at each moment of time, may change unpredictably over time. The theoretical results provide no presumption about the effects of the length of the holding period on the optimal portfolio. Using estimated processes for stock and bill returns, we show that calculated optimal portfolios are virtually invariant to the length of the holding period. The estimated processes for asset returns also imply very little difference between portfolios calculated ignoring changes in the investment opportunity set and those obtained when the investment opportunity set changes over time.

Notes:

Print version record

June 1985.