Skip Navigation



RFS Advance Access published online on April 2, 2004
Review of Financial Studies, doi:10.1093/rfs/hhh003
Review of Financial Studies © The Society for Financial Studies 2004; all rights reserved
This Article
Right arrow Full Text (Accepted Manuscript)
Right arrow All Versions of this Article:
17/4/951    most recent
hhh003v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Maenhout, P. J.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?


The Review of Financial Studies © The Society for Financial Studies 2004; all rights reserved.

Original Articles

Robust Portfolio Rules and Asset Pricing

Pascal J. Maenhout 1*
1 Finance Department, INSEAD, Boulevard de Constance, 77305 Fontainebleau Cedex, France

* To whom correspondence should be addressed. E-mail: pascal.maenhout{at}insead.edu.


  Abstract

I present a new approach to the dynamic portfolio and consumption problem of an investor who worries about model uncertainty (in addition to market risk) and seeks robust decisions along the lines of Anderson, Hansen and Sargent (2002). In accordance with maxmin expected utility, a robust investor insures against some endogenous worst-case. I first show that robustness dramatically decreases the demand for equities and is observationally equivalent to recursive preferences when removing wealth effects. Unlike standard recursive preferences however, robustness leads to environment-specific effective. risk aversion. As an extension, I present a closed-form solution for the portfolio problem of a robust Duffie-Epstein-Zin investor. Finally, robustness increases the equilibrium equity premium and lowers the riskfree rate. Reasonable parameters generate a 4 to 6% equity premium.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 REV FINANC STUDHome page
P. Gagliardini, P. Porchia, and F. Trojani
Ambiguity Aversion and the Term Structure of Interest Rates
Rev. Financ. Stud., October 1, 2009; 22(10): 4157 - 4188.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
D. Easley and M. O'Hara
Ambiguity and Nonparticipation: The Role of Regulation
Rev. Financ. Stud., May 1, 2009; 22(5): 1817 - 1843.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
M. Leippold, F. Trojani, and P. Vanini
Learning and Asset Prices Under Ambiguous Information
Rev. Financ. Stud., November 1, 2008; 21(6): 2565 - 2597.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
P. Boyle, S. Feng, W. Tian, and T. Wang
Robust Stochastic Discount Factors
Rev. Financ. Stud., May 1, 2008; 21(3): 1077 - 1122.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
L. Garlappi, R. Uppal, and T. Wang
Portfolio Selection with Parameter and Model Uncertainty: A Multi-Prior Approach
Rev. Financ. Stud., January 1, 2007; 20(1): 41 - 81.
[Abstract] [Full Text] [PDF]


Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.