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Intertemporal Resolution of Uncertainty and Portfolio Behavior
Author(s) -
Gandhi Devinder K.,
Rashid Muhammad,
Riener Kenneth D.
Publication year - 1989
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1989.tb00354.x
Subject(s) - portfolio , economics , flexibility (engineering) , resolution (logic) , consumption (sociology) , contrast (vision) , welfare , merton's portfolio problem , microeconomics , portfolio optimization , econometrics , financial economics , replicating portfolio , computer science , market economy , social science , management , artificial intelligence , sociology
In this paper, it is shown that the early resolution of uncertainty improves the welfare of an investor who has utility defined over his intertemporal consumption. This result arises because the early resolution of uncertainty permits the investor the additional flexibility of rearranging his initial consumption. In contrast, if the investor has utility for terminal wealth, there is no effect on his portfolio behavior from the early resolution of uncertainty.