Horizon-unbiased Investment with Ambiguity
30 Pages Posted: 24 May 2019
Date Written: April 13, 2019
In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process, reflecting an investor's dynamic preference. We show that the market risk premium and the utility risk premium jointly determine the investors' trading direction and the worst-case scenarios of the risky asset's mean return and volatility. The closed-form formulas for the optimal investment strategies are given in the special settings of the CRRA preference.
Keywords: Ambiguity, Forward Performance, Robust Investment, Risk Premium
JEL Classification: G11, G02
Suggested Citation: Suggested Citation