Portfolio choice and equity characteristics: characterizing the hedging demands induced by return predictability
研究基于规模和账面市值比等特征的股票组合的资产配置，评估收益可预测性对多期投资者（风险厌恶系数4）投资组合选择的影响，发现早期投资者会因可预测性而调整组合，且对冲需求可能部分解释小公司和高账面市值比公司的高预期收益。
This paper examines portfolio allocation across equity portfolios formed on the basis of characteristics like size and book-to- market. In particular, the paper assesses the impact of return predictability on portfolio choice for a multi-period investor with a coefficient of relative risk aversion of 4. Compared to the investor’s allocation in her last period, return predictability with dividend yield causes the investor early in life to tilt her risky-asset portfolio away from high book-to-market stocks and away from small stocks. These results are explained using Merton’s (1973) characterization of portfolio allocation by a multiperiod investor in a continuous time setting. Abnormal returns relative to the investor’s optimal early-life portfolio are also calculated. These abnormal returns are found to exhibit the same cross-sectional patterns as abnormal returns calculated relative to the market portfolio: higher for small than large firms, and higher for high than low book-to-market firms. Thus, hedging demand may be a partial explanation for the high expected returns documented empirically for small firms and high book-to-market firms. However, even with this hedging demand, the investor wants to short-sell the low book-to market portfolio to hold the high book-to-market portfolio. The utility costs of using a value-weighted equity index or of ignoring predictability are also calculated. An investor using a value-weighted equity index would give up a much larger fraction of her wealth to have access to book-to-market portfolios than size portfolios. Finally, while an investor would give up a much larger fraction of her wealth to have access to dividend yield information than term spread information, term spread does have incremental benefits over and above just using dividend yield alone.