Horizon-unbiased Investment with Ambiguity

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

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