Estimating Portfolio and Consumption Choice: A Conditional Euler Equations Approach

Posted: 19 Apr 1999

See all articles by Michael W. Brandt

Michael W. Brandt

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Abstract

This paper develops a nonparametric approach to examine how portfolio and consumption choice depends on variables that forecast time-varying investment opportunities. I estimate single-period and multiperiod portfolio and consumption rules of an investor with constant relative risk aversion and a one-month to twenty-year horizon. The investor allocates wealth to the NYSE index and a 30-day Treasury bill. I find that the portfolio choice varies significantly with the dividend yield, default premium, term premium, and lagged excess return. Furthermore, the optimal decisions depend on the investor's horizon and rebalancing frequency.

JEL Classification: E21, G12

Suggested Citation

Brandt, Michael W., Estimating Portfolio and Consumption Choice: A Conditional Euler Equations Approach. Available at SSRN: https://ssrn.com/abstract=160190

Michael W. Brandt (Contact Author)

Duke University - Fuqua School of Business ( email )

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Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

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United States

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