Advertisement

Asset Allocation Is Intertemporal Preference

  • Morten Arisson
Chapter

Abstract

Asset allocation is an exercise in subjective intertemporal preference. Saving and investing demand that we understand this preference, our liquidity needs, and the macroeconomic and institutional context we live in. But we have simply lost that understanding and instead follow regulations. Under the current paradigm, for instance, expected returns are considered the outcome of volatilities modelled after random processes. Nothing could be further from reality. In this chapter, we describe and suggest a method to establish our subjective liquidity and intertemporal preferences first.

Keywords

Intertemporal preference Interest rates Efficient frontier Optimal portfolio Liquidity preference Asset allocation Compounded rate of return Final value Capital Investing Trading Investing asset Derivatives Commodities Contango Backwardation 

Bibliography

  1. Markowitz, Harry. (March, 1952). Portfolio Selection. The Journal of Finance. Vol. 7, No. 1.Google Scholar
  2. Benes, Jaromir, and Kumhof, Michael (August, 2012). The Chicago Plan Revisited. IMF Working Paper. WP 12/202. Washington, DC: International Monetary Fund. Retrieved November 2013 from: http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
  3. Sibileau, Martin. (November, 2012). Why the Chicago Plan is flawed reasoning and would fail. A View from the Trenches. Retrieved November 2013 from https://www.zerohedge.com/news/2012-11-11/guest-post-why-chicago-plan-flawed-reasoning-and-would-fail

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Morten Arisson
    • 1
  1. 1.Credit Portfolio ManagerTorontoCanada

Personalised recommendations