The Term Structure of the Risk-Return Trade-Off

Posted: 5 Feb 2005

See all articles by John Y. Campbell

John Y. Campbell

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

Luis M. Viceira

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

Abstract

Expected excess returns on bonds and stocks, real interest rates, and risk shift over time in predictable ways. Furthermore, these shifts tend to persist for long periods. Changes in investment opportunities can alter the risk-return trade-off of bonds, stocks, and cash across investment horizons, thus creating a term structure of the risk-return trade-off. This term structure can be extracted from a parsimonious model of return dynamics, as is illustrated with data from the U.S. stock and bond markets.

Keywords: Portfolio Management, Asset Allocation, Investment Theory, Portfolio Theory

Suggested Citation

Campbell, John Y. and Viceira, Luis M., The Term Structure of the Risk-Return Trade-Off. Financial Analysts Journal, Vol. 61, No. 1, pp. 34-44, January/February 2005. Available at SSRN: https://ssrn.com/abstract=661403

John Y. Campbell (Contact Author)

Harvard University - Department of Economics ( email )

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617-496-6448 (Phone)
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HOME PAGE: http://scholar.harvard.edu/campbell

National Bureau of Economic Research (NBER)

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Luis M. Viceira

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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