@techreport{NBERw7170,
title = "Portfolio Advice for a Multifactor World",
author = "John H. Cochrane",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "7170",
year = "1999",
month = "June",
doi = {10.3386/w7170},
URL = "http://www.nber.org/papers/w7170",
abstract = {Asset returns, it turns out, do not follow the Capital Asset Pricing Model, and are somewhat predictable over time. I survey and interpret the large body of recent work that adapts traditional portfolio theory to answer, what should an investor do about these new facts in finance? I survey the extension of the famous 2 - fund' theorem to an N-fund'' theorem in which investors either hedge or assume the additional, non-market, sources of priced risk; I survey the burgeoning literature on time-varying portfolio rules and the Bayesian literature that advocates a great deal of caution. In a survey, I emphasize the risk-sharing nature of asset markets, I note the likelihood that many supposed anomalies will not last, and I emphasize the fact that the average investor must hold the market so portfolio decisions must be driven by differences between an investor and the average investor.},
}