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Resolution of a Financial Puzzle

  • Author(s): Brennan, Michael J.
  • Xia, Yihong
  • et al.
Abstract

The apparent inconsistency between the Tobin Separation Theorem and the advice of popular investment advisors pointed out by Canner et al (1997) is shown to be explicable in terms of the hedging demands of optimising long-term investors in an environment in which the investment opportunity set is subject to stochastic shocks.

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