Published in:EFA 2003 Annual Conference Paper ; No. 267
Extent:
1 Online-Ressource (28 p)
Language:
Not determined
DOI:
10.2139/ssrn.423960
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 2003 erstellt
Description:
The objective of this note is to understand the implications for consumption and portfolio choice of the separation of an investor's risk aversion and elasticity of intertemporal substitution that is made possible by recursive utility, in contrast to expected utility where the two are dictated by the same parameter. In particular, we study whether the optimal consumption and portfolio decisions depend on risk aversion, elasticity of intertemporal substitution, or both. We find that, in general, the consumption and portfolio decisions depend on both risk aversion and the elasticity of intertemporal substitution. Only in the case where the investment opportunity set is constant, is the optimal portfolio weight independent of the elasticity of intertemporal substitution, though even in this case the consumption decision depends on both risk aversion and elasticity of intertemporal substitution