Assets Allocation Of Heterogeneous Investors Based On Inforamation Advantage

Based on the life-cycle investment theory, this paper takes investors’profession into consideration. According to foreign studies, insidertrading could generate excess return. So in the life cycle model of thispaper, risky assets is divided into two parts, industry related stocks andother industry stocks. On one hand, investors should allocate less industryrelated stocks to diminish volatility of labor income; on the other hand,investors should allocate more since information advantage could bring inexcess return. After building relevant model and conduct stochasticoptimization method, the conclusion comes as (1) the investors shouldallocate more industry asset allocation, so the factor of excess return outof information advantage outweigh that of diminishing labor income risk;(2) the inlfuence of information advantage to asset allocation is moreobvious if the investors are in industries with lower earnings.