Horizon-unbiased Investment with Ambiguity

30 Pages Posted: 24 May 2019

See all articles by Qian Lin

Qian Lin

Wuhan University - School of Economics and Management

Xianming Sun

Zhongnan University of Economics and Law - School of Finance

Chao Zhou

National University of Singapore (NUS) - Department of Mathematics

Date Written: April 13, 2019

Abstract

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

Lin, Qian and Sun, Xianming and Zhou, Chao, Horizon-unbiased Investment with Ambiguity (April 13, 2019). Available at SSRN: https://ssrn.com/abstract=3377772 or http://dx.doi.org/10.2139/ssrn.3377772

Qian Lin

Wuhan University - School of Economics and Management ( email )

Wu Han, Hu-Bai 430072
China

Xianming Sun (Contact Author)

Zhongnan University of Economics and Law - School of Finance ( email )

WenQuan Building, 182# Nanhu Avenue
East Lake High-tech Development Zone
Wuhan, Hubei 430073
China

Chao Zhou

National University of Singapore (NUS) - Department of Mathematics ( email )

Department of Mathematics
Singapore, 117543
Singapore

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