Strategic Asset Allocation in a Continuous-Time VAR Model

38 Pages Posted: 12 Jan 2004

See all articles by John Y. Campbell

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

George Chacko

Santa Clara University - Finance Department

Jorge F. Rodriguez

Merrill Lynch

Luis M. Viceira

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2003

Abstract

This Paper derives an approximate solution to a continuous-time intertemporal portfolio and consumption choice problem. The problem is the continuous-time equivalent of the discrete-time problem studied by Campbell and Viceira (1999), in which the expected excess return on a risky asset follows an AR(1) process, while the riskless interest rate is constant. The Paper also shows how to obtain continuous-time parameters that are consistent with discrete-time econometric estimates. The continuous-time solution is the limit of that of Campbell and Viceira and has the property that conservative long-term investors have a large positive intertemporal hedging demand for stocks.

JEL Classification: G12

Suggested Citation

Campbell, John Y. and Chacko, George and Rodriguez, Jorge F. and Viceira, Luis M., Strategic Asset Allocation in a Continuous-Time VAR Model (December 2003). CEPR Discussion Paper No. 4160. Available at SSRN: https://ssrn.com/abstract=487003

John Y. Campbell

Harvard University - Department of Economics ( email )

Littauer Center
Room 213
Cambridge, MA 02138
United States
617-496-6448 (Phone)
617-495-7730 (Fax)

HOME PAGE: http://scholar.harvard.edu/campbell

National Bureau of Economic Research (NBER)

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George Chacko

Santa Clara University - Finance Department ( email )

Santa Clara, CA 95053
United States

Jorge F. Rodriguez

Merrill Lynch ( email )

Metro Office Park, 15 2nd St
Millennium Park Plaza, Suite 210
Guaynabo, 00968
Puerto Rico
787-242-0792 (Phone)

Luis M. Viceira (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6331 (Phone)
617-496-6592 (Fax)

HOME PAGE: http://www.people.hbs.edu/lviceira

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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