UCL Department of Economics


Finance Online Seminar presented by John Campbell (Harvard)

04 November 2020, 5:00 pm–6:00 pm

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Portfolio Choice with Sustainable Spending: A Model of Reaching for Yield

Event Information

Open to



Ji Hee Yoon

Abstract: We show that reaching for yield---a tendency to take more risk when the real interest rate declines while the risk premium remains constant---results from imposing a sustainable spending constraint on an otherwise standard infinitely lived investor with power utility.  When the interest rate is initially low, reaching for yield intensifies.  The sustainable spending constraint also affects the response of risktaking to a change in the risk premium, which can even change sign.  In a variant of the model where the sustainable spending constraint is formulated in nominal terms, low inflation also encourages risktaking.

The seminars will be on Zoom, and there will be a few one-on-one meetings. We will send you the links closer to the date.

About the Speaker

John Campbell

at Harvard