An Empirical Analysis of U.S. Aggregate Portfolio Allocations

CIRPEE Working Paper No. 05-03

35 Pages Posted: 13 Apr 2005

See all articles by Michel Normandin

Michel Normandin

HEC Montreal - Institute of Applied Economics

Pascal St-Amour

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Swiss Finance Institute

Date Written: March 2005

Abstract

This paper analyzes the important time variation in U.S. aggregate portfolio allocations. To do so, we first use flexible descriptions of preferences and investment opportunities to derive optimal decision rules that nest tactical, myopic, and strategic portfolio allocations. We then compare these rules to the data through formal statistical analysis. Our main results reveal that i) purely tactical and myopic investment behaviors are unambiguously rejected, ii) strategic portfolio allocations are strongly supported, and iii) the Fama-French factors best explain empirical portfolio shares.

Keywords: Dynamic hedging, risk aversion, inter-temporal substitution, time-varying investment opportunity set

JEL Classification: G11

Suggested Citation

Normandin, Michel and St-Amour, Pascal, An Empirical Analysis of U.S. Aggregate Portfolio Allocations (March 2005). CIRPEE Working Paper No. 05-03. Available at SSRN: https://ssrn.com/abstract=685965 or http://dx.doi.org/10.2139/ssrn.685965

Michel Normandin

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

Pascal St-Amour (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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