Penaranda, Francisco (2007) Portfolio choice beyond the traditional approach. Discussion paper, 587. Financial Markets Group, London School of Economics and Political Science, London, UK.
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This paper surveys asset allocation methods that extend the traditional approach. An important feature of the traditional approach is that measures the risk and return tradeoff in terms of mean and variance of final wealth. However, there are also other important features that are not always made explicit in terms of investor’s wealth, information, and horizon: The investor makes a single portfolio choice based only on the mean and variance of her final financial wealth and she knows the relevant parameters in that computation. First, the paper describes traditional portfolio choice based on four basic assumptions, while the rest of the sections extend those assumptions. Each section will describe the corresponding equilibrium implications in terms of portfolio advice and asset pricing.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2007 The Author|
|Uncontrolled Keywords:||Mean-Variance analysis, Background risks, Estimation error, Expected utility, Multi-period portfolio choice.|
|Library of Congress subject classification:||H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|Journal of Economic Literature Classification System:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
|Sets:||Research centres and groups > Financial Markets Group (FMG)
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