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The horizon effect of stock return predictability and model uncertainty on portfolio choice: UK evidence

Li, Guangjie 2011. The horizon effect of stock return predictability and model uncertainty on portfolio choice: UK evidence. Applied Financial Economics 21 (11) , pp. 771-787. 10.1080/09603107.2010.537630

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Abstract

We study how stock return's predictability and model uncertainty affect a rational buy-and-hold investor's decision to allocate her wealth for different lengths of investment horizons in the UK market. We consider the Financial Times Stock Exchange (FTSE) All-Share Index as the risky asset, and the UK Treasury bill as the risk free asset in forming the investor's portfolio. We identify the most powerful predictors of the stock return by accounting for model uncertainty. We find that though stock return predictability is weak, it can still affect the investor's optimal portfolio decision over different investment horizons.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
J Political Science > JA Political science (General)
J Political Science > JN Political institutions (Europe) > JN101 Great Britain
Publisher: Taylor & Francis
ISSN: 0960-3107
Last Modified: 04 Jun 2017 03:29
URI: http://orca.cf.ac.uk/id/eprint/21850

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