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. and PORTAIT, R. (1999). On the Bond Stock Asset Allocation Puzzle. In: Proceedings of the 14th European Economic Association - E.E.A. European Economic Association (EEA).