Optimal Asset Allocation Over The Life Cycle For Investors With Different Industrial Background

Research on asset allocation is a relatively new research field.This study attempts to solve the problem of a human society's origin: "How should an individual investor allocate his or her wealth so that it maximizes his or her well-being." Since Markowitz proposed the theory of asset allocation in 1952,after decades of research and development,theoretical research has been gradually improved and applied to practical life practices.The earliest single-period optimal portfolio model has evolved into a life cycle model.With the development of computer technology,more and more variable factors can be taken into consideration,and an optimal solution can be obtained through computer numerical solutions.The existing literature considers more of the background risks of investors as a whole,including labor income,housing prices,health risks,etc.,while few studies have studied the impact of different investor industry backgrounds.This paper attempts to explore the impact of investor industry background on asset allocation.First,the risk assets are divided into two categories from the model.One is the risk assets related to the industry in which the investor is works,and the other is not related to it.In addition,we classify the industry based on investment premium and the correlation between investment premium and labor income.We analyze the optimal asset allocation of investors in different types of industries.Further,we tried to explore a contradiction in the investment decisionmaking problem of investors: On the one hand,the human capital of investors caused by the industry income is highly related to the stocks of the industry.Therefore,from the perspective of risk decentralization,it is necessary to lower the stock of the industry where he or she works;On the other hand,investors have information advantages in their industries,and they can obtain excess returns when the market fails to reach a strong efficient market.Therefore,they may not be consistent with passive investment under subjective expectations.We selected the computer industry represented by the high-yield industry and the transportation industry in the low-yield industry for simulation analysis.Findings: 1)For high-benefit industries,the demand for industry-related stocks brought by information advantages can fully cover the demand for diversification risks which requires to lower the stocks of industry where her or she works.2)For the low-yield industry investors,the most critical thing is whether they can obtain excess returns relative to the whole market through information advantages.If they can obtain a positive excess return,they can be relatively high equipped with risk assets in the industry of their own.