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The University of Southampton
EconomicsPart of Economic, Social and Political Science

1511 Strategic Asset Allocation Revisited (Ricardo Laborda & Jose Olmo)


This paper studies the strategic asset allocation problem of constant relative risk averse
investors. We propose a parametric linear portfolio policy that accommodates an
arbitrarily large number of assets in the portfolio and state variables in the information set.
Our method is made operational through an overidentified system of first order conditions
of the maximization problem that allows us to apply GMM for parameter estimation
and several specification tests. The empirical results for a portfolio of stocks, bonds and
cash provide ample support to the linear specification of the portfolio weights and reveal
significant differences between myopic and strategic optimal portfolio allocations.

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