Skip to main content
Journal cover image

A simulation approach to dynamic portfolio choice with an application to learning about return predictability

Publication ,  Journal Article
Brandt, MW; Goyal, A; Santa-Clara, P; Stroud, JR
Published in: Review of Financial Studies
September 1, 2005

We present a simulation-based method for solving discrete-time portfolio choice problems involving non-standard preferences, a large number of assets with arbitrary return distribution, and, most importantly, a large number of state variables with potentially path-dependent or non-stationary dynamics. The method is flexible enough to accommodate intermediate consumption, portfolio constraints, parameter and model uncertainty, and learning. We first establish the properties of the method for the portfolio choice between a stock index and cash when the stock returns are either iid or predictable by the dividend yield. We then explore the problem of an investor who takes into account the predictability of returns but is uncertain about the parameters of the data generating process. The investor chooses the portfolio anticipating that future data realizations will contain useful information to learn about the true parameter values.

Duke Scholars

Altmetric Attention Stats
Dimensions Citation Stats

Published In

Review of Financial Studies

DOI

ISSN

0893-9454

Publication Date

September 1, 2005

Volume

18

Issue

3

Start / End Page

831 / 873

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
  • 1401 Economic Theory
 

Citation

APA
Chicago
ICMJE
MLA
NLM
Brandt, M. W., Goyal, A., Santa-Clara, P., & Stroud, J. R. (2005). A simulation approach to dynamic portfolio choice with an application to learning about return predictability. Review of Financial Studies, 18(3), 831–873. https://doi.org/10.1093/rfs/hhi019
Brandt, M. W., A. Goyal, P. Santa-Clara, and J. R. Stroud. “A simulation approach to dynamic portfolio choice with an application to learning about return predictability.” Review of Financial Studies 18, no. 3 (September 1, 2005): 831–73. https://doi.org/10.1093/rfs/hhi019.
Brandt MW, Goyal A, Santa-Clara P, Stroud JR. A simulation approach to dynamic portfolio choice with an application to learning about return predictability. Review of Financial Studies. 2005 Sep 1;18(3):831–73.
Brandt, M. W., et al. “A simulation approach to dynamic portfolio choice with an application to learning about return predictability.” Review of Financial Studies, vol. 18, no. 3, Sept. 2005, pp. 831–73. Scopus, doi:10.1093/rfs/hhi019.
Brandt MW, Goyal A, Santa-Clara P, Stroud JR. A simulation approach to dynamic portfolio choice with an application to learning about return predictability. Review of Financial Studies. 2005 Sep 1;18(3):831–873.
Journal cover image

Published In

Review of Financial Studies

DOI

ISSN

0893-9454

Publication Date

September 1, 2005

Volume

18

Issue

3

Start / End Page

831 / 873

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
  • 1401 Economic Theory