Consumption and Portfolio Decisions when Expected Returns are Time Varying

John Campbell and Luis Viceira ()

The Quarterly Journal of Economics, 1999, vol. 114, issue 2, 433-495

Abstract: This paper presents an approximate analytical solution to the optimal consumption and portfolio choice problem of an infinitely lived investor with Epstein-Zin-Weil utility who faces a constant riskless interest rate and a time-varying equity premium. When the model is calibrated to U. S. stock market data, it implies that intertemporal hedging motives greatly increase, and may even double, the average demand for stocks by investors whose risk-aversion coefficients exceed one. The optimal portfolio policy also involves timing the stock market. Failure to time or to hedge can cause large welfare losses relative to the optimal policy.

Date: 1999
References: Add references at CitEc
Citations: View citations in EconPapers (465)

Downloads: (external link)
http://hdl.handle.net/10.1162/003355399556043 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Consumption and Portfolio Decisions When Expected Returns are Time Varying (1999)
Working Paper: Consumption and Portfolio Decisions When Expected Returns Are Time Varying (1998)
Working Paper: Consumption and Portfolio Decisions When Expected Returns are Time Varying (1996)
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:oup:qjecon:v:114:y:1999:i:2:p:433-495.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().