Investing for the Long Run

Dietmar Leisen and Eckhard Platen ()

Papers from arXiv.org

Abstract: This paper studies long term investing by an investor that maximizes either expected utility from terminal wealth or from consumption. We introduce the concepts of a generalized stochastic discount factor (SDF) and of the minimum price to attain target payouts. The paper finds that the dynamics of the SDF needs to be captured and not the entire market dynamics, which simplifies significantly practical implementations of optimal portfolio strategies. We pay particular attention to the case where the SDF is equal to the inverse of the growth-optimal portfolio in the given market. Then, optimal wealth evolution is closely linked to the growth optimal portfolio. In particular, our concepts allow us to reconcile utility optimization with the practitioner approach of growth investing. We illustrate empirically that our new framework leads to improved lifetime consumption-portfolio choice and asset allocation strategies.

Date: 2017-05
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1705.03929 Latest version (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:arx:papers:1705.03929

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().