Strategic Asset Allocation: Portfolio Choice for Long-Term Investors

Hardcover | January 1, 2002

byJohn Y. Campbell, Luis M. Viceira

not yet rated|write a review
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists.Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes thatinvestors care only about risks to wealth one period ahead. However, many investors---both individuals and institutions such as charitable foundations or universities---seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth inisolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption.At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealthitself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities---both interest rates and risk premia on bonds and stocks---vary through time. Yet this insight has hadlittle influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are saferassets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used tounderstand the portfolio choice problems of long-term investors.

Pricing and Purchase Info

$63.00

Ships within 1-3 weeks
Ships free on orders over $25

From the Publisher

Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists.Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of divers...

John Y. Campbell received a BA from Oxford in 1979 and a PhD from Yale in 1984. He spent the next ten years teaching at Princeton, moving to Harvard in 1994 to become the first Otto Eckstein Professor of Applied Economics. Campbell has co-edited the American Economic Review and the Review of Economics and Statistics; he is a Fellow of...

other books by John Y. Campbell

Crossbones
Crossbones

Paperback|Sep 29 2015

$15.32 online$21.00list price(save 27%)
Drifters
Drifters

Paperback|Jan 6 2015

$15.12 online$18.00list price(save 16%)
Omega Days
Omega Days

Paperback|May 6 2014

$15.29 online$17.00list price(save 10%)
see all books by John Y. Campbell
Format:HardcoverDimensions:272 pages, 8.5 × 5.43 × 0.79 inPublished:January 1, 2002Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0198296940

ISBN - 13:9780198296942

Customer Reviews of Strategic Asset Allocation: Portfolio Choice for Long-Term Investors

Reviews

Extra Content

Table of Contents

1. Introduction2. Myopic Portfolio Choice3. Who Should Buy Long-Term Bonds?4. Is the Stock Market Safer for Long-Term Investors?5. Strategic Asset Allocation in Continuous Time6. Human Wealth and Financial Wealth7. Investing over the Life Cycle

Editorial Reviews

`At last we have a book that lays out how we should use the basic insights of mean-variance analysis to advise investors on their their lifetime portfolio problem. It is a pleasure to read when one sees such sensible and lucid application of highbrow financial theory to the most practical andimportant of problems. This book represents a major theoretical breakthrough that allows us to translate the principles of intertemporal financial and econometric theory into concrete advice for investing.'Robert J. Shiller, Yale University