On time consistency for mean-variance portfolio selection

Elena Vigna

No 476, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: This paper addresses a comparison between different approaches to time inconsistency for the mean-variance portfolio selection problem. We define a suitable intertemporal preferences-driven reward and use it to compare the three possible approaches to time inconsistency for the mean-variance portfolio selection problem over [t0, T]: precommitment approach (Zhou & Li (2000)), game theoretical approach (Basak & Chabakauri (2010), Bj¨ork & Murgoci (2010)), and dynamic approach (Pedersen & Peskir (2016)). We find that the precommitment strategy beats the other strategies if the investor only cares at the view point at time t0 and is not concerned to be time inconsistent in (t0, T); the Nash-equilibrium strategy dominates the dynamic strategy until a time point t∗ ∈ (t0, T) and is dominated by the dynamic strategy from t∗ on wards.

Keywords: time inconsistency; dynamic programming; Bellman's optimality principle; precommitment approach; Nash perfect equilibrium; mean-variance portfolio selection. (search for similar items in EconPapers)
JEL-codes: C61 D81 G11 (search for similar items in EconPapers)
Pages: pages 22
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.carloalberto.org/wp-content/uploads/2018/11/no.476.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:476

Access Statistics for this paper

More papers in Carlo Alberto Notebooks from Collegio Carlo Alberto Contact information at EDIRC.
Bibliographic data for series maintained by Giovanni Bert ().