covariance matrix implied by the long-run risk model of Bansal and Yaron (2004). Comparing the optimal allocations of investors … using the longrun risk VAR versus an unrestricted reduced-form VAR reveals stark differences in portfolio strategies. Long …-run risk investors are quite conservative relative to reduced-form investors due to intertemporal hedging concerns. Despite the …

The preferred risk habitat hypothesis, introduced here, is that individual investors select stocks whose volatilities … are commensurate with their risk aversion. The data, 1995-2000 holdings of over 20,000 clients at a large German broker … volatilities, when stocks are sold they are replaced by stocks of similar volatilities, and the more risk averse customers indeed …