Template-Type: ReDIF-Paper 1.0
Author-Name: Berkelaar, A.B.
Author-Name-Last: Berkelaar
Author-Name-First: Arjan
Author-Name: Kouwenberg, R.R.P.
Author-Name-Last: Kouwenberg
Author-Name-First: Roy
Author-Person: pko16
Title: Dynamic asset allocation and downside-risk aversion
Abstract: This paper considers dynamic asset allocation in a mean versus downside-risk framework. We derive closed-form solutions for the optimal portfolio weights when returns are lognormally distributed. Moreover, we study the impact of skewed and fat-tailed return distributions. We find that the optimal fraction invested in stocks is V-shaped: at low and high levels of wealth the investor increases the stock weight. The optimal strategy also exhibits reverse time-effects: the investor allocates more to stocks as the horizon approaches. Furthermore, the investment strategy becomes more risky for negatively skewed and fat-tailed return distributions.
Creation-Date: 2000-04-12
File-URL: https://repub.eur.nl/pub/1645/feweco20000412150551.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI 2000-12/A
Keywords: downside-risk, optimal asset allocation
Handle: RePEc:ems:eureir:1645