In the recent years several commentators hinted at an increase of the correlation between equity and commodity prices, and blamed investment in commodity-related products for this. First, this paper investigates such claims by looking at various measures of correlation. Next, we assess what are the implications of higher correlations between oil and equity prices for asset allocation. We develo...

This paper explicitly solves, in closed form, the optimal consumption and portfolio choice for an ambiguity averse investor in a Merton-type two assets economy where a risk premium follows a mean-reverting process. The investor’s preferences are represented by the recursive multiple priors utility model developed by Chen and Epstein (2002). The investor’s utility depends on both intermediate co...

This paper finds that mean-variance portfolio optimization of stocks, bonds, hedge funds, real estate investment trusts and commodities is sufficiently exact to optimize the investor’s utility. We approximate the expected utility using a Taylor series expansion including terms involving third and fourth order moments. The empirial findings for monthly data from August 1994 August 2009 suggest t...

This paper considers the optimal asset allocation problem for defined-contribution pension plan members whose terminal utility is a function of replacement ratio, i.e. the pension-to-final wage ratio. When three asset types are available for investment, the optimal portfolio composition, which is horizon dependent, includes investment in both riskless and risky assets. The investment in risky a...

Most tests of asset pricing models address only the pricing predictions – perhaps because the portfolio choice predictions are obviously wrong. But how can asset-pricing theory be right if the portfolio choice theory on which it rests is wrong? This work builds and observes experimental markets in which risky and riskless assets are traded. Risk aversion is a robust phenomenon in experimental s...

The increasing ubiquity of information systems in organizations has been accompanied by a rise in users adopting technology that is not officially mandated (often known as shadow IT). This study examines the emergence and consequences of such locally-driven but centrally-unintended adaptations of an organization’s collection of IT assets. This phenomenon, referred to as “IS portfolio drift, can...