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Portfolio choice beyond the traditional approach

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  • Francisco Peñaranda

Abstract

This paper surveys asset allocation methods that extend the traditional approach. An important feature of the the traditional approach is that measures the risk and return tradeoff in terms of mean and variance of final wealth. However, there are also other important features that are not always made explicit in terms of investor’s wealth, information, and horizon: The investor makes a single portfolio choice based only on the mean and variance of her final financial wealth and she knows the relevant parameters in that computation. First, the paper describes traditional portfolio choice based on four basic assumptions, while the rest of the sections extend those assumptions. Each section will describe the corresponding equilibrium implications in terms of portfolio advice and asset pricing.

Suggested Citation

  • Francisco Peñaranda, 2007. "Portfolio choice beyond the traditional approach," Economics Working Papers 1026, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1026
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    Cited by:

    1. Sanne de Boer, 2010. "Factor tilting for expected utility maximization," Journal of Asset Management, Palgrave Macmillan, vol. 11(1), pages 31-42, April.

    More about this item

    Keywords

    Mean-Variance Analysis; Background Risks; Estimation Error; Expected Utility; Multi-Period Portfolio Choice;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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