Prof. Gabriela Victoria ANGHELACHE PhD.
Bucharest University of Economic Studies
Prof. Vladimir MODRAK, PhD
Technical University of Košice
Lect. Mădălina Gabriela ANGHEL PhD.
“Artifex” University of Bucharest
Marius POPOVICI PhD. Student
Bucharest University of Economic Studies
Abstract
Future developments of states and states of nature of a system are predictable. Portfolio management needs predictability techniques In order to benefit of opportunities. In theory, predictability has no time dimension. Practically, as opportunity is embedded stochastically, there may appear changes of state that are predictable, as in the correlation between returns and stocks. A certain resource reversion might be possible with regard to returns and stock. The predictability of the optimal portfolio management becomes the objective of any investor who follows a flexible strategy based on optimal exposure to risk. Thus, investors will try to anticipate the possible shocks affecting the opportunity set of their investment. More precisely, they will admit the possibility to hedge any bad news concerning the future opportunity set, the so called “myopia” relative to time horizon when predictability is possible. This circumstance is part of the relative risk aversion. We can affirm that predictability has the same effect as a reduction of risk aversion.
Key words: Portfolio management, predictability, risky assets, hedging demand, planning horizon, conditional distribution, marginal value of wealth.
