A Mean-Variance Benchmark for Intertemporal Portfolio Theory

John Cochrane

No 18768, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Mean-variance portfolio theory can apply to the streams of payoffs such as dividends following an initial investment, in place of one-period returns. This description is especially useful when returns are not independent over time and investors have non-marketed income. Investors hedge their outside income streams, and then their optimal payoff is split between an indexed perpetuity - the risk-free payoff - and a long-run mean-variance efficient payoff. "Long-run" moments sum over time as well as states of nature. In equilibrium, long-run expected returns vary with long-run market betas and outside- income betas. State-variable hedges do not appear in optimal payoffs or this equilibrium.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2013-02
Note: AP
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Citations: View citations in EconPapers (1)

Published as John H. Cochrane, 2014. "A Mean-Variance Benchmark for Intertemporal Portfolio Theory," Journal of Finance, American Finance Association, vol. 69(1), pages 1-49, 02.

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Journal Article: A Mean-Variance Benchmark for Intertemporal Portfolio Theory (2014)
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