Horizon Length and Portfolio Risk

31 Pages Posted: 6 Sep 2000 Last revised: 6 Aug 2010

See all articles by Christian Gollier

Christian Gollier

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: October 1997

Abstract

In this paper, we compare the attitude towards current risk of two expected-utility-maximizing investors that are identical except that the first investor will live longer than the" second one. In one of the models under consideration, there are two assets at every period. The" first asset has a zero sure return, whereas the second asset is risky without serial correlation of" yields. It is often suggested that the young investor should purchase more of the risky asset than" the old investor in such circumstances. We show that a necessary and sufficient condition to get" this property is that the Arrow-Pratt index of absolute tolerance (Tu) be convex. If we allow for a" positive risk-free rate, the necessary and sufficient condition is Tu convex extends the well-known result that investors are myopic in this model if and only if the utility" function exhibits constant relative risk aversion.

Suggested Citation

Gollier, Christian and Zeckhauser, Richard J., Horizon Length and Portfolio Risk (October 1997). NBER Working Paper No. t0216. Available at SSRN: https://ssrn.com/abstract=226624

Christian Gollier (Contact Author)

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS) ( email )

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National Bureau of Economic Research (NBER) ( email )

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