We are delighted to announce the next seminar in the series - Micro and Macro Implications of Household Behaviour and Financial Decision-Making

The seminar will run from 3:30 to 5:00 pm (BST) on Friday 28 April

Jonathan Parker presenting "Simple Allocation Rules and Optimal Portfolio Choice Over the Life-cycle" with discussion by Peter Maxted

Abstract: We develop a machine-learning solution algorithm to solve for optimal portfolio choice in a lifecycle model that includes many features of reality modelled only separately in previous work. We use the quantitative model to evaluate the consumption-equivalent welfare losses from using simple rules for portfolio allocation across stocks, bonds, and liquid accounts instead of the optimal portfolio choices, both for optimizing households and for households that under save. We find that the consumption-equivalent losses from using an age-dependent rule as embedded in current target-date/lifecycle funds (TDFs) are substantial, around 2 to 3 percent of consumption, despite the fact that TDF rules mimic average optimal behavior by age closely until shortly before retirement. Optimal equity shares have substantial heterogeneity, particularly by wealth level, state of the business cycle, and dividend-price ratio, implying substantial gains to further customization of advice or TDFs in these dimensions. 

Further details can be found on the Seminar Webpage here. 

Organisers:
Richard Blundell
Michael Haliassos
Christopher Hansman
Yigitcan Karabulut
Peter Levell
Benjamin Moll
Tarun Ramadorai
Pol Simpson