This paper studies intertemporal investment strategies under inflation risk by extending the intertemporal framework of Merton (1973) to include a stochastic price index. The stochastic price index gives rise to a two-tier evaluation system: agents maximize their utility of consumption in real...

The aim of this paper is to develop an optimal long-term bond investment strategy which can be applied to real market situations. This paper employs Merton’s intertemporal framework to accommodate the features of a stochastic interest rate and the time-varying dynamics of bond returns. The...

In this paper, we conduct an empirical study to investigate the directionality of the dependence between the Chinese economy and the Japanese economy. Taking a probabilistic causal approach, we infer the causal dependence among the Japanese economy and the Chinese economy based on observed data....

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...

This paper studies the impact of stochastic volatility (SV) on optimal investment decisions. We consider three different SV models: an extended Stein/Stein model, the Heston Model and an extended Heston Model with a constant elasticity variance (CEV) process and derive the the long-term optimal...

Recently, Campbell and Viceira (2002) have introduced a framework that allows for dynamic decisions in asset allocation. This paper follows up their work by showing how uncertainties and expectations may affect consumption and portfolio decisions in an intertemporal dynamic framework. We use the...

This paper proposes and analyses a term structure model that allows for both stochastic correlation between underlying factors and an extended market price of risk specification. The issues of invariant transformation and different normalization are then considered so that a comparison between...

During the last 25 years, the Chinese economy has experienced significant changes: the centrally planned economy has been reformed gradually into a market economy; the traditional agricultural economy is becoming more and more a modern industrial economy. In a dynamic two-sector-two-segment...

Granger causality as a popular concept in time series analysis is widely applied in empirical research. The interpretation of Granger causality tests in a cause-effect context is, however, often unclear or even controversial, so that the causality label has faded away. Textbooks carefully warn...