| In this dissertation we study the optimal portfolio selection problem. In this respect we develop an estimation technique to compute single and multi-period portfolio weights of an infinitely-lived investor who invests in N risky assets and one risk-free asset using the first-order condition "Euler equation" from the investor utility maximization problem.;The dissertation is composed of three chapters. The first chapter analyses and computes the single-period optimal portfolio choice of an infinitely lived investor. In the second chapter we extend our analysis for the multi-period optimal portfolio choice. Finally, the third chapter we empirically introduce consumption growth as a source of long-term risk and hence a source of influence on the optimal portfolio choice.;The investor is assumed to have one of two sets of preference representations: Epstein-Zin (EZ) recursive utility function or habit formation (HF) utility function. We investigate the portfolio weights generated from these utility functions for different sets of preferences parameters including the risk-aversion parameter and the intertemporal elasticity of substitution parameter. We find that the optimal portfolio weights differ greatly across time and across utility functions Our results show that more risk averse investors tend to hold fewer stocks than less risk-averse ones. Moreover, we found that the introduction of consumption growth in our GARCH-in-Mean specification has an impact on the composition of the investor's optimal portfolio choice.;Keywords: Portfolio Choice, Epstein-Zin, Stock markets.;JEL Classification: G0.G11.G17. |
