Markets Economists study trade, production and consumption decisions, such as those that occur in a traditional marketplace. Electronic trading brings together buyers and sellers through an electronic trading platform and network to create virtual market places.
Asset Allocation Asset allocation refers to the division of one's investment portfolio across the various asset classes. At the highest level, this refers to a split between stocks and bonds. Many more finely defined sub-asset allocations are also common.
Ian Ayres and Barry J. This outstanding paper discusses the idea of spreading one's stock exposure more evenly across their lifetime, which should then reduce the riskiness surrounding the ending wealth.
Here's an excellent website where the authors discuss this idea. Here's the outstanding book where they elaborate in depth on this idea.
This outstanding article covers the same ground as the "Diversification Across Time" paper above, but at a level which is more readable for the layperson. Randolph Hood, and Gilbert P.
This was the paper which revolutionized portfolio construction by emphasizing the importance of asset allocation. It found that, on average, Further, it found that active management resulted in an annual reduction of 1.
Singer, and Gilbert P. Bogle, " The Riddle of Performance Attribution: Vanguard's founder concludes that, while asset allocation is very important, controlling costs is also very important. Much of the advice presented to investors during periods of unusual market activity should be ignored.
It is more important to rebalance the retirement portfolio on the basis of a change in risk aversion, rather than on the conditions in the financial markets. Pragmatic advice on asset allocation.
For a smaller file version, see here kb. This paper studies the relative efficacy of various asset classes as inflation hedges.
It finds that treasury bonds are a complete hedge against expected inflation. It also finds that private residential real estate is a complete hedge against both expected and unexpected inflation.
Gibson, " A Timely Reminder: The recent market tumult offers a perfect opportunity to remember the advantages of a diversified, balanced portfolio ," Financial Planning, October An excerpt from Mr.
Gibson's outstanding book, Asset Allocation: Another outstanding version of his timeless message, reprinted from its original appearance in this Journal in March American Economic Review Vol.
94 No. 1 March Find articles in this issue. Title.
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American Economic Review Vol. No. 5 May Full Issue Download PDF (AEA members only).