A Stylized Fact of Asset Allocation

34 Pages Posted: 23 Nov 2003

See all articles by Kevin C.H. Chiang

Kevin C.H. Chiang

University of Alaska Fairbanks - School of Management (SOM); Louisiana State University, Baton Rouge - Department of Finance

Date Written: November 20, 2003

Abstract

The study forms pairs of asset allocation mutual funds that are controlled for all informational attributes, except for the level of risk aversion. Standard mean-variance models of portfolio choice predict that the rebalancing of common stocks in aggressive funds would be proportional to the rebalancing of common stocks in conservative funds. Dynamic models of portfolio choice with time varying expected returns suggest that aggressive funds are more aggressive market timers than conservative funds. However, the study finds that the rebalancing of common stocks in conservative funds to be disproportionally more intense.

Keywords: Asset allocation, dynamic choice, risk aversion, mutual funds

JEL Classification: D9, G11

Suggested Citation

Chiang, Kevin C.H., A Stylized Fact of Asset Allocation (November 20, 2003). Available at SSRN: https://ssrn.com/abstract=471861 or http://dx.doi.org/10.2139/ssrn.471861

Kevin C.H. Chiang (Contact Author)

University of Alaska Fairbanks - School of Management (SOM) ( email )

P.O. Box 756080
208C Bunnell Building
Fairbanks, AK 99775-0500
United States
907-474-7049 (Phone)
907-474-5219 (Fax)

Louisiana State University, Baton Rouge - Department of Finance ( email )

E.J. Ourso College of Business Administration
Baton Rouge, LA 70803
United States
225-753-4978 (Phone)
225-388-6366 (Fax)

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