Summary: Many investors do not know with certainty when their portfolio will be liquidated. Should their portfolio selection be influenced by the uncertainty of exit time? In order to answer this question, we consider a suitable extension of the familiar optimal investment problem of R. C. Merton
[J. Econ. Theory 3, No. 4, 373–413 (1971; Zbl 1011.91502
)], where we allow the conditional distribution function of an agent’s time-horizon to be stochastic and correlated to returns on risky securities. In contrast to existing literature, which has focused on an independent time-horizon, we show that the portfolio decision is affected.