Household portfolio empirical studies have shown that young and relatively poor households hold under-diversified portfolios that are concentrated in a small number of assets, a fact often attributed to various behavioral biases. We present a model that offers a rational potential alternative:...

Empirical studies of household portfolios show that young households, with little financial wealth, hold underdiversified portfolios that are concentrated in a small number of assets, a fact often attributed to behavioral biases. We present a potential rational alternative: we show that...

The tax rate on capital gains of equity securities has varied substantially over time and correlates negatively with realized capital gains and collected taxes. Our model shows that investors who anticipate the dynamics of the capital gains tax rate in their bond-equity mix, realize more gains...

We study portfolio choice with multiple stocks and capital gain taxation assuming that capital losses can only offset current or future realized capital gains. We show through backtesting, using empirical distributions, that optimal equity holdings over an extended period are significantly lower...

We develop a numerical method that combines functional approximations and dynamic programming to solve high-dimensional discrete-time stochastic control problems under general constraints. The method employs quasi-random grids and radial basis functions to handle high-dimensional state spaces;...