PT - JOURNAL ARTICLE AU - Willi Semmler AU - Chih-Ying Hsiao TI - Dynamic Consumption and Portfolio Decisions with<br/>Estimated Low Frequency Movements of Asset Returns AID - 10.3905/jwm.2011.14.2.101 DP - 2011 Jul 31 TA - The Journal of Wealth Management PG - 101--111 VI - 14 IP - 2 4099 - https://pm-research.com/content/14/2/101.short 4100 - https://pm-research.com/content/14/2/101.full AB - This article estimates and employs low frequency components of asset returns and uses dynamic programming to evaluate dynamic consumption and asset allocation decisions. The low frequency components are estimated through fast Fourier transform (FFT). After harmonic fits of actual U.S. time series data using FFT, dynamic programming is used to solve for dynamic consumption and asset allocation decisions. Furthermore, dynamic consumption and asset allocation decisions are explored for varying risk aversions and varying time horizons across investors. The welfare of investors as well as the fate of their wealth is also explored. We also spell out some rough practical guidelines for financial investments for the case of time-varying asset returns.TOPICS: Portfolio construction, statistical methods