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http://hdl.handle.net/2451/27346
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| Title: | Risk Aversion and Allocation to Long-Term Bonds |
| Authors: | Wachter, Jessica A. |
| Issue Date: | Nov-2001 |
| Series/Report no.: | S-MF-01-05 |
| Abstract: | As risk aversion approaches infinity, the portfolio of an investor with
utility over consumption at time T is shown to converge to the portfolio
consisting entirely of a bond maturing at time T. Previous work on bond
allocation requires a specific model for equities, the term structure,
and the investor's utility function. In contrast, the only substantive
assumption required for the analysis in this paper is that markets are
complete. The result, which holds regardless of the underlying
investment opportunities and the utility function, formalizes the
"preferred habitat" intuition of Modigliani and Sutch. |
| URI: | http://hdl.handle.net/2451/27346 |
| Appears in Collections: | Macro Finance
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