Portfolio Selection With Randomly Time-Varying Moments: The Role of the Instantaneous Capital Market Line

Topics:
Investment and Capital Markets
Tags:
Capital Market,
Finance,
Financial Services,
Investment,
Investment Opportunity
Source:
Columbia University

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Overview: This paper shows that investors need to hedge only against changes in the random slope and position of the instantaneous capital market line. If the instantaneous capital market line is constant or deterministic, then investors will not hold any hedge funds at all, even though means, variances and covariance's of securities returns may be changing randomly over time. Based on these results, the paper proposes a new definition of the investment opportunity set and changes in the investment opportunity set.

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Format: PDF | Size: 166KB | Date: Jan 2000 | Pages: 24

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