Variable selection for portfolio choice
Journal Article (Journal Article)
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 nonexpected utility (ambiguity aversion and prospect theory) objectives and characterize their market timing, horizon effects, and hedging demands.
Full Text
Duke Authors
Cited Authors
- Aït-Sahalia, Y; Brandt, MW
Published Date
- January 1, 2001
Published In
Volume / Issue
- 56 / 4
Start / End Page
- 1297 - 1351
International Standard Serial Number (ISSN)
- 0022-1082
Digital Object Identifier (DOI)
- 10.1111/0022-1082.00369
Citation Source
- Scopus