Strategic Asset Allocation, Asset Price Dynamics, and the Business Cycle
37 Pages Posted: 5 Jul 2007
Date Written: June 24, 2007
The main contribution of this work is to provide a dynamic general equilibrium model of asset allocation, allowing to reconcile economic theory with several puzzling contradictions recently pointed out in the literature: (i) the asset allocation puzzle, (ii) the observed timevariation in aggregate portfolio holdings and (iii) the occurrence of twin peaks in equity and house prices. In this approach, compared to the existing literature, the main difference stems from the fact that, in addition to consumption and dividends, both prices and portfolio decisions are allowed to be endogenously determined within a general equilibrium framework. Secondly, real estate is introduced into the analysis, labor supply is allowed to be endogenously determined and macroeconomic shocks are the main source of riskiness.
Keywords: Strategic Asset Allocation, House Prices
JEL Classification: E20, G11, G12
Suggested Citation: Suggested Citation