TY  - JOUR
AU  - Canner,Niko
AU  - Mankiw,N. Gregory
AU  - Weil,David N.
TI  - An Asset Allocation Puzzle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4857
PY  - 1994
Y2  - September 1994
UR  - http://www.nber.org/papers/w4857
L1  - http://www.nber.org/papers/w4857.pdf
N1  - Author contact info:
N. Gregory Mankiw
Department of Economics
Littauer 223
Harvard University
Cambridge, MA  02138
Tel: 617/495-4301
Fax: 617/495-7730
E-Mail: ngmankiw@fas.harvard.edu

David N. Weil
Department of Economics
Box B
Brown University
Providence, RI 02912
Tel: 401/863-1754
Fax: 401/863-1970
E-Mail: david_weil@brown.edu
M2  - featured in NBER digest on 1995-02-01
AB  - This paper examines popular advice on portfolio allocation among cash, bonds, and stocks.  It documents that this advice is inconsistent with the mutual-fund separation theorem, which states that all investors should hold the same composition of risky assets. In contrast to the theorem, popular advisors recommend that aggressive investors hold a lower ratio of bonds to stocks than conservative investors.  The paper explores various possible explanations of this puzzle.  It concludes that the portfolio recommendations can be explained if popular advisors base their advice on the unconditional distribution of nominal returns.  It also finds that the cost of this money illusion is small, as measured by the distance of the recommended portfolios from the mean-variance efficient frontier.
ER  -