Portfolio choice beyond the traditional approach

Francisco Penaranda

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper surveys asset allocation methods that extend the traditional approach. An important feature of the traditional approach is that measures the risk and return tradeoff in terms of mean and variance of final wealth. However, there are also other important features that are not always made explicit in terms of investor’s wealth, information, and horizon: The investor makes a single portfolio choice based only on the mean and variance of her final financial wealth and she knows the relevant parameters in that computation. First, the paper describes traditional portfolio choice based on four basic assumptions, while the rest of the sections extend those assumptions. Each section will describe the corresponding equilibrium implications in terms of portfolio advice and asset pricing.

Keywords: Mean-Variance analysis; Background risks; Estimation error; Expected utility; Multi-period portfolio choice. (search for similar items in EconPapers)
JEL-codes: D81 G11 G12 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2007-03-01
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24481

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