© K. Cuthbertson and D. Nitzsche Figures for Chapter 16 Intertemporal Asset Allocation : Empirics (Quantitative Financial Economics)

© K. Cuthbertson and D. Nitzsche Horizon (years) % Allocation to Stocks (=  ) Parameter Uncertainty ( ,  2 ) No Parameter Uncertainty Notes : 1.) Returns model is r t+1 =  +  t+1,  t+1 ~ N(0,  2 ) 2.) Data for estimates of ( ,  2 ) from Figure 1 : ‘Buy and Hold’ : No Predictability (  = 10)

© K. Cuthbertson and D. Nitzsche Horizon (years) % Allocation to Stocks (  ) Parameter Uncertainty ( ,  2 ) No Parameter Uncertainty 40 Notes : 1.) A bivariate VAR model ( ) for returns and the dividend-price ratio is used. 2.) Dividend yield at T = 0 is set at its sample mean value Figure 2 : ‘Buy and Hold’ : Predictability in Returns (  = 10)