Dynamic asset allocation and downside-risk aversion

Arjan Berkelaar and Roy Kouwenberg

No EI 2000-12/A, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: This paper considers dynamic asset allocation in a mean versus downside-risk framework. We derive closed-form solutions for the optimal portfolio weights when returns are lognormally distributed. Moreover, we study the impact of skewed and fat-tailed return distributions. We find that the optimal fraction invested in stocks is V-shaped: at low and high levels of wealth the investor increases the stock weight. The optimal strategy also exhibits reverse time-effects: the investor allocates more to stocks as the horizon approaches. Furthermore, the investment strategy becomes more risky for negatively skewed and fat-tailed return distributions.

Keywords: downside-risk; optimal asset allocation (search for similar items in EconPapers)
Date: 2000-04-12
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://repub.eur.nl/pub/1645/feweco20000412150551.pdf (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:ems:eureir:1645

Access Statistics for this paper

More papers in Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute Contact information at EDIRC.
Bibliographic data for series maintained by RePub ( this e-mail address is bad, please contact ).