Strategic Asset Allocation, Asset Price Dynamics, and the Business Cycle

37 Pages Posted: 5 Jul 2007

See all articles by Ivan Jaccard

Ivan Jaccard

European Central Bank (ECB) - Directorate General Research

Date Written: June 24, 2007

Abstract

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

Jaccard, Ivan, Strategic Asset Allocation, Asset Price Dynamics, and the Business Cycle (June 24, 2007). Swiss Finance Institute Research Paper No. 07-19, Available at SSRN: https://ssrn.com/abstract=998210 or http://dx.doi.org/10.2139/ssrn.998210

Ivan Jaccard (Contact Author)

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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