Myopic Portfolio Choice
- 3 January 2002
- book chapter
- Published by Oxford University Press (OUP)
Abstract
Reviews the theory of portfolio choice for short‐term investors, and explains the special cases in which long‐term investors should make the same choices as short‐term investors. When investors’ relative risk aversion does not depend on their wealth, investment horizon is irrelevant for investors who have only financial wealth and who face constant investment opportunities. Even if investment opportunities are time‐varying, the investment horizon is still irrelevant for investors whose relative risk aversion equals one. However, there is strong empirical evidence that these conditions fail in various ways, thus allowing for legitimate arguments for horizon effects on portfolio choice.Keywords
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