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A Non-linear Model of Portfolio Behaviour With Time-varying Expectations and Risks

In: Risk, Portfolio Management and Capital Markets

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  • David Blake

Abstract

There are now many examples of empirical single-period mean-variance (mv) models of portfolio behaviour.1 The main features of these models are that: 1. the mv utility functions underlying their optimising behaviour have marginal rates of substitution between m and v that are independent of asset holdings; this leads to linear asset demand systems with the optimal holdings of assets determined explicitly; 2. the estimates of the expectations and risks of the returns on the assets in the portfolios are generally backward-looking, often determined as constants or moving averages from the historical sample; 3. little attention is generally paid to the question of the dynamic adjustment of the portfolio; this implicitly assumes that individuals are always, or are at least quite close to, holding optimal portfolios.

Suggested Citation

  • David Blake, 1992. "A Non-linear Model of Portfolio Behaviour With Time-varying Expectations and Risks," Palgrave Macmillan Books, in: T. E. Cooke & J. Matatko & D. C. Stafford (ed.), Risk, Portfolio Management and Capital Markets, chapter 4, pages 54-78, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11666-9_5
    DOI: 10.1007/978-1-349-11666-9_5
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