EconPapers    
Economics at your fingertips  
 

Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor

John Campbell (), João Cocco, Francisco Gomes, Pascal J. Maenhout and Luis Viceira ()

Review of Finance, 2001, vol. 5, issue 3, 269-292

Abstract: This paper solves numerically the intertemporal consumption and portfolio choice problem of an infinitely-lived investor who faces a time-varying equity premium. The solutions we obtain are very similar to the approximate analytical solutions of Campbell and Viceira (1999), except at the upper extreme of the state space where both the numerical consumption and portfolio rules flatten out. We also consider a constrained version of the problem in which the investor faces borrowing and short-sales restrictions. These constraints bind when the equity premium moves away from its mean in either direction, and are particularly severe for risk-tolerant investors. The constraints have substantial effects on optimal consumption, but much more modest effects on optimal portfolio choice in the region of the state space where they are not binding. JEL classification: G12.

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1023/A:1013860504885 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor (2001) Downloads
Working Paper: Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor (2000) Downloads
Working Paper: Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor (1999)
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:revfin:v:5:y:2001:i:3:p:269-292.

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

Review of Finance is currently edited by Josef Zechner and Marco Pagano

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press (). This e-mail address is bad, please contact .

 
Page updated 2019-10-16
Handle: RePEc:oup:revfin:v:5:y:2001:i:3:p:269-292.