Aggregate portfolio choice

Joachim Inkmann

Journal of Empirical Finance, 2024, vol. 77, issue C

Abstract: Important portfolio choice decisions are made for large groups of heterogeneous individual investors. I propose solving the cross-sectional average of the individual Euler equations to find an optimal portfolio for an aggregate of investors under one-size-fits-all constraints. Using a dynamic portfolio choice model to design balanced default funds for 72 hypothetical industry pension plans, the average Euler equations depend on industry-specific per-capita earnings growth and moments of idiosyncratic earnings shocks. Inter-industry heterogeneity in moments of the joint distribution of earnings growth and the return on risky assets, including correlation and cokurtosis, explains the variation in optimal choice variables across industries.

Keywords: Dynamic portfolio choice; Designing default funds; Earnings risk; Aggregation; GMM (search for similar items in EconPapers)
JEL-codes: D14 D15 G11 G51 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:77:y:2024:i:c:s092753982400029x

DOI: 10.1016/j.jempfin.2024.101494

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