A Dynamic Mean-Variance Analysis for Log Returns

54 Pages Posted: 19 Aug 2019 Last revised: 9 Sep 2019

See all articles by Min Dai

Min Dai

National University of Singapore (NUS) - Department of Mathematics

Hanqing Jin

Mathematical Institute; Oxford-Nie Financial Big Data Laboratory; St. Peter's College

Steven Kou

Boston University

Yuhong Xu

Soochow university

Date Written: September 24, 2018

Abstract

We propose a dynamic portfolio choice model with the mean-variance criterion for log-returns. The model yields time-consistent portfolio policies and is analytically tractable even under some incomplete market settings. The portfolio policies conform with conventional investment wisdom (e.g. richer people should invest more absolute amount of money in risky assets; the longer investment time horizon, the more proportional amount of money should be invested in risky assets; and for long-term investment, people should not short sell major stock indices whose returns are higher than the risk-free rate), and the model provides a direct link with the CRRA utility maximization in a complete market.

Keywords: portfolio choices, stochastic volatility, time-varying mean returns, risk aversion recovery

JEL Classification: G11, D81, C61

Suggested Citation

Dai, Min and Jin, Hanqing and Kou, Steven and Xu, Yuhong, A Dynamic Mean-Variance Analysis for Log Returns (September 24, 2018). Available at SSRN: https://ssrn.com/abstract=3437268 or http://dx.doi.org/10.2139/ssrn.3437268

Min Dai

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

Singapore

Hanqing Jin

Mathematical Institute ( email )

Andrew Wiles Building
Radicliff Observatory Quarter, Woodstock Road
Oxford, oxfordshire OX2 6GG
United Kingdom

HOME PAGE: http://www.maths.ox.ac.uk

Oxford-Nie Financial Big Data Laboratory ( email )

Andrew Wiles Building
Woodstock Road
Oxford, Oxfordshire OX2 6GG
United Kingdom

St. Peter's College ( email )

New Inn Hall Street
Oxford, Oxfordshire OX1 2DL
United Kingdom

HOME PAGE: http://www.spc.ox.ac.uk

Steven Kou

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
6173583318 (Phone)

Yuhong Xu (Contact Author)

Soochow university ( email )

No. 1 Shizi Street
Suzhou, Jiangsu 215006
China

HOME PAGE: http://web.suda.edu.cn/yhxu/

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