The Bond-Stock Mix: A New Insight
35 Pages Posted: 16 May 2011 Last revised: 30 Jan 2012
Date Written: January 29, 2012
This paper examines the issue of asset allocation that can be implemented by a retiree who faces health expenditures. We contribute to the literature by considering a higher risk aversion towards consumption than towards wealth. Our results show that: i) only the risks of the opportunity set linked to interest rates are relevant; ii) the large risk aversion towards consumption leads to a substantial increase of the demand in bonds. These findings provide useful insights for the management of wealth of pension funds.
Keywords: Bond-stock mix, pension funds, consumption, bequest, risk aversion, investment horizon
JEL Classification: G13
Suggested Citation: Suggested Citation