TY  - JOUR
AU  - Cochrane,John H.
TI  - Portfolio Advice for a Multifactor World
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7170
PY  - 1999
Y2  - June 1999
UR  - http://www.nber.org/papers/w7170
L1  - http://www.nber.org/papers/w7170.pdf
N1  - Author contact info:
John H. Cochrane
Booth School of Business
University of Chicago
5807 S. Woodlawn
Chicago, IL  60637
Tel: 773/702-3059
Fax: 773/702-0458
E-Mail: john.cochrane@chicagobooth.edu
AB  - 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.
ER  -