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Horizon-unbiased Investment with Ambiguity

Qian Lin, Xianming Sun and Chao Zhou

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Abstract: In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process, reflecting an investor's dynamic preference. We show that the market risk premium and the utility risk premium jointly determine the investors' trading direction and the worst-case scenarios of the risky asset's mean return and volatility. The closed-form formulas for the optimal investment strategies are given in the special settings of the CRRA preference.

New Economics Papers: this item is included in nep-upt
Date: 2019-04
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