A Stylized Fact of Asset Allocation
34 Pages Posted: 23 Nov 2003
Date Written: November 20, 2003
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: Suggested Citation