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Working Papers (1999), ESSEC Business School

On the Bonds-stock Asset Allocation Puzzle

BAJEUX-BESNAINOU I., JORDAN J., PORTAIT Roland

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 Bonds-stock Asset Allocation Puzzle. ESSEC Business School.