We study an optimal consumption-portfolio selection problem when
there is a non-zero probability that members of the investment opportunity
set change, that is, new assets appear or old assets disappear
in the financial market. When such a change implies a better future
investment opportunity in terms of a higher Sharpe ratio, an investor
increases his consumption above the level he would otherwise consume
if and only if he is less willing to substitute consumption intertemporally
than a log investor, i.e., his elasticity of intertemporal substitution
is less than 1. We also show that the optimal portfolio is not affected by
such a change if the means and variances of the asset returns are constant
(except that they can disappear or new assets can be born). This
irrelevance of portfolio selection in the face of a member change of the
investment opportunity set (that will induce a jump in the investor’s
utility) is not valid if asset returns have time-varying expected returns
and risks. We show that either a potential future member change in
the investment opportunity set or a jump in the state variable generally
has a significant effect on the hedging demand.
학회소식
공지사항
[2003년 제 2차] A New Investment Opportunity: Implications for Opti
작성자 : 관리자
조회수 : 1069
게시일 :
2003-07-12