Horizon Effects That Are Larger than You Think: Dynamic Allocation with a Representative Investor

Journal of Investment Management, No. 2, 2017, 39-50

University of Connecticut School of Business Research Paper No. 19-07

26 Pages Posted: 9 Jul 2016 Last revised: 24 Feb 2019

See all articles by Thomas J. O'Brien

Thomas J. O'Brien

University of Connecticut - Department of Finance

Date Written: February 5, 2019

Abstract

This paper illustrates optimal dynamic allocation in a traditional two-fund capital market model. As in previous literature, a mean-reverting market portfolio implies a “horizon effect” in typical investors’ allocations. For investors whose risk aversion is higher than the representative investor’s, the horizon effect becomes substantially larger in the capital market model than in previous models.

Keywords: dynamic asset allocation, mean reversion, horizon effect, momentum, representative investor, time diversification

JEL Classification: G11

Suggested Citation

O'Brien, Thomas J., Horizon Effects That Are Larger than You Think: Dynamic Allocation with a Representative Investor (February 5, 2019). Journal of Investment Management, No. 2, 2017, 39-50; University of Connecticut School of Business Research Paper No. 19-07. Available at SSRN: https://ssrn.com/abstract=2806537 or http://dx.doi.org/10.2139/ssrn.2806537

Thomas J. O'Brien (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
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United States
860-486-3041 (Phone)
860-486-0634 (Fax)

HOME PAGE: http://www.business.uconn.edu/staff.asp?id=57

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