An Asset Allocation Puzzle: Comment

The model derives optimal portfolio strategies for different utility functions, when the investor continuously rebalances stocks, bonds and money market instruments. We investigate the bond/stock allocation puzzle (the ratio B/S increases with risk aversion according to popular advice but not according to standard portfolio theory) about long horizon investing.

BAJEUX-BESNAINOU, I., JORDAN, J.B. and PORTAIT, R. (2001). An Asset Allocation Puzzle: Comment. American Economic Review, pp. 1170-1179.