Learning and Portfolio Decisions for HARA Investors

We maximize the expected utility from terminal wealth for an HARA investor when the market price of risk is an unobservable random variable. We compute the optimal portfolio explicitly and explore the effects of learning by comparing it with the corresponding myopic policy. In particular, we show that, for a market price of risk constant in sign, the ratio between the portfolio under partial observation and its myopic counterpart increases with respect to risk tolerance. As a consequence, the ab...