Project Management

Time Varying Prospective Utility And Optimal Asset Allocation For Australasian Stocks And Bonds

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Executive Summary

This paper presents evidence that the concept of the frequency of portfolio evaluation required to produce indifference between Stocks and Bonds is highly dependent upon the actual test sample period. For each of two Pacific Rim markets, author pose two questions - given prospect theory preferences, taking account of a selection of plausible evaluation periods, how do the prospective utilities of stock, bond and optimally mixed portfolios evolve with time, and how does the optimum allocation ratio of stocks in a mixed stock/bond portfolio vary? Their asset allocation profiles indicate both distinctions and similarities between the markets of Australia and Japan; differing patterns of behaviour of the Australasian markets when compared to those of the U.S. and U.K.

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