Designing an Investment Trust: Theoretical Foundations

Fujio Takata ()
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Fujio Takata: Graduate School of Economics, Kobe University

No 2601, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: This paper deals with a dynamic portfolio with dividends. The portfolio consists of a risky asset and a safe one. Investors initially buy the portfolio and enjoy their consumption based on the dividends over time. During their lifetime, they reinvest the funds after the dividends are paid. In short, investors adopt a strategy of buying and holding. They decide on a portfolio and the dividend rate to maximize their utility in every period, in a series of separate decisions. In this situation, there seems to be a tradeoff between dividends and reinvestment, to the possible detriment of the portfolio. Thus, we focus on establishing an optimal path for dividends. JEL Classification: G-11; G-12; G-23; G-32.

Keywords: CRRA type utility function; Dividend; Ito's lemma; Portfolio choice. (search for similar items in EconPapers)
Pages: 16 pages
Date: 2026-02
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