Model regarding the dynamic management of shares portfolio

Constantin Anghelache, Gabriela Anghel and Marius Popovici
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Constantin Anghelache: Academia de Studii Economice, Universitatea “Artifex” Bucuresti
Gabriela Anghel: Universitatea “Artifex” Bucuresti
Marius Popovici: Academia de Studii Economice

Romanian Statistical Review Supplement, 2016, vol. 64, issue 7, 87-93

Abstract: The treatment of dynamic management of share portfolio is part of a theoretical approach and research that were started at the end of the 60s by Merton and Samuelson. They explored and defined the dynamic portfolio within a continuum economy with HARA utility functions. In 1968, Mossin demonstrated that HARA functions are the only one functions for which myopic approach is optimal when there are no serial correlations for the profits. In e 90s, Deaton and Carroll examined the effect of liquidities constraints on the optimal saving behaviour. Later, in 2000, Barberis estimated the significance of return predictability on the American exchange market. In 1999 and 2000, Campbell, Viciera and Barberis estimated this hedging demand numerically. The effect of profit predictability on the optimal structure of the initial portfolio became surprisingly important for an agent with risk aversion equal to 10 and a time strategy developed on ten- year time horizon. The optimal investment in shares represents 40% of the current wealth without predictability. This will climb up to 100% when mean-reversion is considered. But, still in 1986, Detemple already examined the asset demand problem under incomplete information and learning.

Keywords: Dynamic management; share portfolio; HARA functions; time horizons; predictability; Utility functions (search for similar items in EconPapers)
Date: 2016
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