6533b871fe1ef96bd12d0e13
RESEARCH PRODUCT
A Top-Down Method for Long-Term Investing
Dietmar LeisenEckhard Platensubject
Stochastic discount factorEconometricsEconomicsPortfolioStock marketTop-down and bottom-up designInvestment (macroeconomics)Term (time)description
This paper bases long-term investing on a tradeable stochastic discount factor (SDF), relates it to the growth optimal portfolio and argues for a top-down method, where modeling efforts are directed at capturing its long-run dynamics in a generalized setting. This differs from the common, cumbersome bottom-up method of modeling many risky securities in the marketplace. Various optimal portfolio strategies can be implemented efficiently using fractional expectations of the SDF. This paper illustrates empirically for the US stock market that the proposed method leads to higher wealth, higher returns on investment and higher long-term utility levels.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2021-01-01 | SSRN Electronic Journal |