The impact of short-sale constraints on asset allocation strategies via the backward Markov chain approximation method

Chiarella, C; Hsiao, C

The impact of short-sale constraints on asset allocation strategies via the backward Markov chain approximation method

Chiarella, C Hsiao, C

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Publisher:: Springer New York LLC
Publication Type:: Journal Article
Citation:: Computational Economics, 2006, 28 (2), pp. 113 - 137
Issue Date:: 2006-01

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Field	Value	Language
dc.contributor.author	Chiarella, C	en_US
dc.contributor.author	Hsiao, C	en_US
dc.date.issued	2006-01	en_US
dc.identifier.citation	Computational Economics, 2006, 28 (2), pp. 113 - 137	en_US
dc.identifier.issn	0927-7099	en_US
dc.identifier.uri	http://hdl.handle.net/10453/5156
dc.description.abstract	This paper considers an asset allocation strategy over a finite period under investment uncertainty and short-sale constraints as a continuous-time stochastic control problem. Investment uncertainty is characterised by a stochastic interest rate and inflation risk. If there are no short-sale constraints, the optimal asset allocation strategy can be obtained analytically. We consider several kinds of short-sale constraints and employ the backward Markov chain approximation method to explore the impact of short-sale constraints on asset allocation decisions. Our results show that the short-sale constraints do indeed have a significant impact on these decisions.	en_US
dc.publisher	Springer New York LLC	en_US
dc.relation.ispartof	Computational Economics	en_US
dc.relation.isbasedon	10.1007/s10614-006-9036-4	en_US
dc.subject.classification	Economics	en_US
dc.title	The impact of short-sale constraints on asset allocation strategies via the backward Markov chain approximation method	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	28	en_US
utslib.for	1403 Econometrics	en_US
utslib.for	1499 Other Economics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
dc.location.activity	Beijing, PEOPLES R CHINA
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	2	en_US
pubs.volume	28	en_US

Abstract:

This paper considers an asset allocation strategy over a finite period under investment uncertainty and short-sale constraints as a continuous-time stochastic control problem. Investment uncertainty is characterised by a stochastic interest rate and inflation risk. If there are no short-sale constraints, the optimal asset allocation strategy can be obtained analytically. We consider several kinds of short-sale constraints and employ the backward Markov chain approximation method to explore the impact of short-sale constraints on asset allocation decisions. Our results show that the short-sale constraints do indeed have a significant impact on these decisions.

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http://hdl.handle.net/10453/5156