The duration puzzle in life-cycle investment
Bovenberg,Lans van Bilsen,Servaas Boelaars,Ilja
Bovenberg,Lans
van Bilsen,Servaas
Boelaars,Ilja
Abstract
By analyzing the portfolio allocations of target date funds (TDFs), we document that the observed durations of TDF portfolios are inconsistent with the durations predicted by classical portfolio theory. We call this stylized fact the duration puzzle. We investigate to what extent several extensions of classical portfolio theory can explain the duration puzzle. More specifically, we consider the impact of human capital, inflation risk, and portfolio restrictions on the duration of the optimal portfolio. We find that it is difficult to explain the duration puzzle, especially for individuals aged between 35 and 65 years.
Description
Publisher Copyright: © The Author(s) 2020. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved.
Date
2020-11
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Life-Cycle Investment, Target Date Funds, Long-Term Bonds, Interest Rate Risk Management, C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis, D15 - Intertemporal Household Choice; Life Cycle Models and Saving, D52 - Incomplete Markets, G11 - Portfolio Choice ; Investment Decisions, G13 - Contingent Pricing ; Futures Pricing, SDG 8 - Decent Work and Economic Growth
Citation
Bovenberg, L, van Bilsen, S & Boelaars, I 2020, 'The duration puzzle in life-cycle investment', Review of Finance, vol. 24, no. 6, pp. 1271-1311. https://doi.org/10.1093/rof/rfaa009
License
info:eu-repo/semantics/closedAccess