Dynamic consumption and portfolio choice considering information learning and stochastic interest rate

This paper investigates the consumption-portfolio choice of investors with information learning ability when faced with historical performance, within a stochastic interest rate framework. We simultaneously analyze investor behaviors, specifically momentum trading and contrarian trading. Using the dynamic programming method, we derive the closed-form solutions. The numerical results demonstrate how investors with heterogeneous characteristics make consumption-investment allocations in response to different historical performances. We find that momentum investors tend to overreact to short-term market fluctuations, while contrarian investors focus on long-term investment potential and market reversals. In addition, our findings suggest that information utility is time -sensitive and decays over time.