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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27080
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| Title: | An Asset Allocation Puzzle: When is A Puzzle Not A Puzzle? |
| Authors: | Elton, Edwin J.
Gruber, Martin J. |
| Issue Date: | 20-Apr-1998 |
| Series/Report no.: | FIN-98-082 |
| Abstract: | In a recent article in this journal, Canner, Mankiw and Weil (CMV) argue
that in general popular investment advice, and in particular the
investment advice of four investment advisors, is inconsistent with
modern portfolio theory and is irrational. As CMV state, since portfolio
theory is so well known and easy to implement, finding irrationality
here has serious implications for the assumption of rationality
throughout economics. As part of their analysis, CMV assert that
investment advice can only be viewed as rational if the ratio of bonds
to stocks either remains constant or increases as the investor seeks
higher return (takes on more risk). As evidence of advisor
irrationality, CMV point out that investor advisors frequently advocate
decreases in the ratio of bonds to stocks to obtain higher returns. They
state, "Although we cannot rule out the possibility that popular
advice is consistent with some model of rational behavior, we have so
far been unable to find such a model." |
| URI: | http://hdl.handle.net/2451/27080 |
| Appears in Collections: | Finance Working Papers
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