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Portfolio Choice with Uncertain Consumption Prices: a mean-variance approch

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  • Berck, Peter
  • Cecchetti, Stephen G.

Abstract

This paper presents a mean-variance model of portfolio choice and asset pricing when the price of consumption goods as well as the return to assets is uncertain. The correlation of an assets return with purchases at expected prices is shown to reduce both the mean return and the variance of the return of an asset. A numerical approximation is computed to check the accuracy of the mean and variance approximation. Uncertainty of consumption prices is shown to result in long (or speculative) futures holding.

Suggested Citation

  • Berck, Peter & Cecchetti, Stephen G., 1980. "Portfolio Choice with Uncertain Consumption Prices: a mean-variance approch," CUDARE Working Papers 37852, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:37852
    DOI: 10.22004/ag.econ.37852
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    References listed on IDEAS

    as
    1. Paul H. Cootner, 1960. "Returns to Speculators: Telser versus Keynes," Journal of Political Economy, University of Chicago Press, vol. 68(4), pages 396-396.
    2. Hagerman, Robert L. & Kim, E. Han, 1976. "Capital Asset Pricing with Price Level Changes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 11(3), pages 381-391, September.
    3. Grauer, Frederick L A & Litzenberger, Robert H, 1979. "The Pricing of Commodity Futures Contracts, Nominal Bonds and Other Risky Assets under Commodity Price Uncertainty," Journal of Finance, American Finance Association, vol. 34(1), pages 69-83, March.
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    Risk and Uncertainty;

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