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| Author: | Campbell, J. Y. |
| Title: | Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor |
| Journal: | European Finance Review
2001 : VOL. 5:3, p. 269-292 |
| Index terms: | STOCKS STOCK MARKETS INVESTORS ALLOCATION ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | This paper solves numerically the intertemporal consumption and portfolio choice problem of an infinitely-lived investor who faces a time-varying equity premium. The solutions the authors obtain are very similar to the approximate analytical solutions of Campbell and Viccira (1999), except at the upper extreme of the state space where both the numerical consumption and portfolio rules flatten out. The authors also consider a constrained version of the problem in which the investor faces borrowing and short-sales restrictions. These constraints bind when the equity premium moves away from its mean m either direction, and are particularly severe for investors. |
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