Does the Failure of the Expectations Hypothesis Matter for Long-Term Investors ?

@inproceedings{Sangvinatsos2003DoesTF,
  title={Does the Failure of the Expectations Hypothesis Matter for Long-Term Investors ?},
  author={Antonios Sangvinatsos},
  year={2003}
}
  • Antonios Sangvinatsos
  • Published 2003
We consider the consumption and portfolio choice problem of a long-run investor when the term structure is affine and when the investor has access to nominal bonds and a stock portfolio. In the presence of unhedgeable inflation risk, there exist multiple pricing kernels that produce the same bond prices, but a unique pricing kernel equal to the marginal utility of the investor. We apply our method to a three-factor Gaussian model with a time-varying price of risk that captures the failure of… CONTINUE READING

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