Abstract

http://ssrn.com/abstract=1892298
 
 

References (22)



 


 



Portfolio Rebalancing in General Equilibrium


Miles S. Kimball


University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Matthew D. Shapiro


University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Tyler Shumway


University of Michigan at Ann Arbor, The Stephen M. Ross School of Business

Jing Zhang


University of Michigan at Ann Arbor

July 7, 2011


Abstract:     
Standard portfolio advice is that agents should hold a constant share of risky assets. All agents cannot, however, follow this advice because supply and demand of risky assets must be equal. To study equilibrium rebalancing, the paper develops an overlapping generations model in which agents differ both in age and risk tolerance. Equilibrium rebalancing is driven by a leverage effect that affects levered and unlevered agents in opposite directions, an aggregate risk tolerance effect which depends on the distribution of wealth, and an intertemporal hedging effect. Optimal equilibrium portfolio rebalancing departs significantly from the standard advice.

Number of Pages in PDF File: 39

Keywords: rebalancing, portfolio theory, overlapping generations

JEL Classification: G11

working papers series





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Date posted: July 22, 2011  

Suggested Citation

Kimball, Miles S. and Shapiro, Matthew D. and Shumway, Tyler and Zhang, Jing, Portfolio Rebalancing in General Equilibrium (July 7, 2011). Available at SSRN: http://ssrn.com/abstract=1892298 or http://dx.doi.org/10.2139/ssrn.1892298

Contact Information

Miles S. Kimball
University of Michigan at Ann Arbor - Department of Economics ( email )
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-2375 (Phone)
734-764-2769 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Matthew D. Shapiro
University of Michigan at Ann Arbor - Department of Economics ( email )
and Survey Research Center
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-5419 (Phone)
313-764-2769 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
313-764-5419 (Phone)
313-764-2769 (Fax)
Tyler Shumway (Contact Author)
University of Michigan at Ann Arbor, The Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-4129 (Phone)
734-936-0274 (Fax)
HOME PAGE: http://www.umich.edu/~shumway
Jing Zhang
University of Michigan at Ann Arbor ( email )
701 Tappan St. Rm E2600
Ann Arbor, MI 48109
United States
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