This paper studies the strategic asset allocation problem of individuals with a mul-
tiperiod utility function over consumption. Our main contribution is to incorporate the
existence of nonlinear dynamics in the relative risk aversion coefficient of power utility
functions characterizing individuals' preferences. This coefficient is modelled as a two-
regime piecewise linear process not only capturing the evolution of the economy but also
nonlinearities due to differences in risk attitudes towards the short and long term defined
over the individual's multiperiod, potentially infinite, investment horizon. This modelling
strategy is applied in a empirical application to study the impact of model misspecifi-
cation due to using constant or linear characterizations of relative risk aversion on the
optimal portfolio decision of strategic individuals holding a portfolio of stocks, bonds and
cash. The empirical results suggest that individual's risk aversion and optimal portfo-
lio allocation do not only vary with the economic environment but are also investment
horizon specific.