Reference no: EM131041485
Consider a two-period world (i.e., t = 0, 1, and 2) where risky asset returns are not IID. We also assume that investors can balance portfolios during the interim period. A Markowitz investor relies on the static portfolio choice theory we discussed in the first week of the class, and a long-horizon investor relies on the dynamic portfolio choice theory we discuss in the second week of the class. Both investors have the same risk aversion parameter value, and has the same utility function. Evaluate the following statements about static and dynamic portfolio choices, True or False? Explain briefly if the statement is False.
a) One of the fundamental differences between the Markowitz investor and the longhorizon investor is that the Markowitz investor can carry out optimization period by period, while the long-horizon investor can only carry out optimization at the beginning of the period (i.e., t = 0).
b) For a Markowitz investor in a two-period world, a two-period risk-free bond is a risky asset; and for a long-horizon investor in a two-period world, a two-period risk-free bond is a risk-free asset.
c) Let ??1 and ??2 denote the utility associated with the Markowitz investor's portfolio in the first and second period, and ?? = ??1 +??2. Similarly, let ??1 and ??2 denote the utility associated with the long-horizon investor's portfolio in the first and second period, and ?? = ??1 +??2. Then we always have ??>??, ??1 >??1, and ??2 >??2.
d) For both the long-horizon investor and the Markowitz investor, they face the same optimization problem at ?? = 1; and they all solve a one-period Markowitz problem.
e) Let ????∗ denote the optimal weight in stock in the Markowitz investor's portfolio at t = 0. Similarly, let ????∗ denote the optimal weight in stock in the long-horizon investor's portfolio. If stock return exhibits mean-reversion, while stock return volatility stays constant over time, then ????∗<????∗.
f) Let ????∗ denote the optimal weight in stock in the Markowitz investor's portfolio at t = 0. Similarly, let ????∗ denote the optimal weight in stock in the long-horizon investor's portfolio. If stock return between t=0 and t-1, ??1, is negatively correlated with return volatility during the next period, ????2 2while expected stock returns are the same during these two period, or ??(??1) = ??(??2) = ??, then ????∗<????∗.
Develop a research proposal in consultation
: HLTEN514B APPLY RESEARCH SKILLS WITHIN A CONTEMPORARY HEALTH ENVIRONMENT - Identify client-related issues in participating in research and Identifying physical and emotional support needs of clients to be involved in research
|
Hr director of based medium-sized consumer products firm
: Think about this scenario – you are the HR director of a U.S. based medium-sized consumer products firm. Your company is opening a sales office in [ you choose the country]. Your job is to decide the best approach for staffing this new office.
|
Linear programming formulation for minimizing the costs
: The paper aims at contribution of novel mixed integer linear programming formulation for minimizing the costs of operating power and gas systems thus impacting unit commitment in industrial micro grid with renewable generation
|
How law shaped and developed and limits of legal controls
: Would your answer be different if you were told that Jennifer was an independent contractor and not an employee of ParcelEasy? Justify your answer.
|
Static and dynamic portfolio choices
: Evaluate the following statements about static and dynamic portfolio choices, True or False? Explain briefly if the statement is False.
|
How would characterize practice in which our firm engaged
: For the past six months, I have been working as a telesales accounts manager for a manufacturer of bedroom slippers. The firm had recently opened the telesales department, on a trial basis, to reach smaller retailers whose sales volumes were not larg..
|
Accumulate funds for environmental improvements
: On January 15, 2012, Dolan Corp. adopted a plan to accumulate funds for environmental improvements beginning July 1, 2016, at an estimated cost of $5,000,000. Dolan plans to make four equal annual deposits in a fund that will earn interest at 10% ..
|
Kind of treatment on matters relating to discipline
: 1. Who is at fault and why? 2. Do you think unionized employees require a different kind of treatment on matters relating to discipline?
|
Organizational climate is the hallmark of integrated purpose
: Organizational climate is the hallmark of integrated purpose, strong focus on the advancement of the individual, and respect for all members. Discuss any situations you have encountered in your vocational experiences where this cohesiveness was evide..
|