A unique optimal stock–bond mix for all long-run investors

Moshe Levy

doi:10.1007/s10479-023-05735-2

A unique optimal stock–bond mix for all long-run investors

Moshe Levy^*

^*Corresponding author for this work

Business Administration

Research output: Contribution to journal › Article › peer-review

Abstract

Life expectancy has increased significantly over the last century, implying a substantial lengthening of the investment horizon. We consider the portfolio choice problem of long-run investors in a setting with three assets: stocks, risky bonds, and a risk-free asset. We show that in the benchmark continuous-time framework there is a unique stock–bond mix that is optimal for all investors with non-decreasing preferences, including Prospect Theory investors, and investors with various aspiration levels. In discrete time, there is a set of efficient stock–bond mixtures. As the investment horizon increases, this set shrinks quickly and converges to the unique continuous-time optimal solution.

Original language	English
Journal	Annals of Operations Research
DOIs	https://doi.org/10.1007/s10479-023-05735-2
State	Accepted/In press - 2023

Bibliographical note

Publisher Copyright:
© 2023, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.

Keywords

First-degree Stochastic Dominance (FSD)
Investment horizon
Lognormal distribution
Prospect theory
Stocks versus bonds

Access to Document

10.1007/s10479-023-05735-2

Cite this

@article{629719277d854233b3ff586185ecf0e7,

title = "A unique optimal stock–bond mix for all long-run investors",

abstract = "Life expectancy has increased significantly over the last century, implying a substantial lengthening of the investment horizon. We consider the portfolio choice problem of long-run investors in a setting with three assets: stocks, risky bonds, and a risk-free asset. We show that in the benchmark continuous-time framework there is a unique stock–bond mix that is optimal for all investors with non-decreasing preferences, including Prospect Theory investors, and investors with various aspiration levels. In discrete time, there is a set of efficient stock–bond mixtures. As the investment horizon increases, this set shrinks quickly and converges to the unique continuous-time optimal solution.",

keywords = "First-degree Stochastic Dominance (FSD), Investment horizon, Lognormal distribution, Prospect theory, Stocks versus bonds",

author = "Moshe Levy",

note = "Publisher Copyright: {\textcopyright} 2023, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.",

year = "2023",

doi = "10.1007/s10479-023-05735-2",

language = "אנגלית",

journal = "Annals of Operations Research",

issn = "0254-5330",

publisher = "Springer Netherlands",

}

TY - JOUR

T1 - A unique optimal stock–bond mix for all long-run investors

AU - Levy, Moshe

PY - 2023

Y1 - 2023

N2 - Life expectancy has increased significantly over the last century, implying a substantial lengthening of the investment horizon. We consider the portfolio choice problem of long-run investors in a setting with three assets: stocks, risky bonds, and a risk-free asset. We show that in the benchmark continuous-time framework there is a unique stock–bond mix that is optimal for all investors with non-decreasing preferences, including Prospect Theory investors, and investors with various aspiration levels. In discrete time, there is a set of efficient stock–bond mixtures. As the investment horizon increases, this set shrinks quickly and converges to the unique continuous-time optimal solution.

AB - Life expectancy has increased significantly over the last century, implying a substantial lengthening of the investment horizon. We consider the portfolio choice problem of long-run investors in a setting with three assets: stocks, risky bonds, and a risk-free asset. We show that in the benchmark continuous-time framework there is a unique stock–bond mix that is optimal for all investors with non-decreasing preferences, including Prospect Theory investors, and investors with various aspiration levels. In discrete time, there is a set of efficient stock–bond mixtures. As the investment horizon increases, this set shrinks quickly and converges to the unique continuous-time optimal solution.

KW - First-degree Stochastic Dominance (FSD)

KW - Investment horizon

KW - Lognormal distribution

KW - Prospect theory

KW - Stocks versus bonds

UR - http://www.scopus.com/inward/record.url?scp=85179318384&partnerID=8YFLogxK

U2 - 10.1007/s10479-023-05735-2

DO - 10.1007/s10479-023-05735-2

M3 - ???researchoutput.researchoutputtypes.contributiontojournal.article???

AN - SCOPUS:85179318384

SN - 0254-5330

JO - Annals of Operations Research

JF - Annals of Operations Research

ER -

A unique optimal stock–bond mix for all long-run investors

Abstract

Bibliographical note

Keywords

Access to Document

Other files and links

Fingerprint

Cite this