Empirical Evaluation of Investor Rationality in the Asset Allocation Puzzle
Georges Dionne and
Cahiers de recherche from CIRPEE
We examine the portfolio-choice puzzle posed by Canner, Mankiw, and Weil (1997). The idea is to test a conclusion reached by Elton and Gruber (2000), stating that a bonds/stocks ratio which decreases in relation to risk tolerance does not necessarily mean a contradiction of modern portfolio-choice theory and does not cast doubt on the rationality of investors. From data on the portfolio composition of 470 clients of a Canadian brokerage firm, we obtain that the bonds/stocks ratio does decrease in relation to risk tolerance. We also verify the existence of the two-fund separation theorem in the assets data available to the investors in our sample.
Keywords: Investor rationality; asset allocation puzzle; risk tolerance; separation theorem; bonds/stocks ratio (search for similar items in EconPapers)
JEL-codes: C13 D12 D80 G11 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0635
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