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Strategic Asset AllocationPortfolio Choice for Long-Term Investors$
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John Y. Campbell and Luis M. Viceira

Print publication date: 2002

Print ISBN-13: 9780198296942

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198296940.001.0001

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Myopic Portfolio Choice

Myopic Portfolio Choice

Chapter:
(p.17) 2 Myopic Portfolio Choice
Source:
Strategic Asset Allocation
Author(s):

John Y. Campbell (Contributor Webpage)

Luis M. Viceira (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0198296940.003.0002

Reviews the theory of portfolio choice for short‐term investors, and explains the special cases in which long‐term investors should make the same choices as short‐term investors. When investors’ relative risk aversion does not depend on their wealth, investment horizon is irrelevant for investors who have only financial wealth and who face constant investment opportunities. Even if investment opportunities are time‐varying, the investment horizon is still irrelevant for investors whose relative risk aversion equals one. However, there is strong empirical evidence that these conditions fail in various ways, thus allowing for legitimate arguments for horizon effects on portfolio choice.

Keywords:   Epstein‐Zin utility, investment horizon, mean‐variance analysis, myopic portfolio choice, portfolio choice, risk aversion

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