Aging population, retirement, and risk taking

Haim Levy*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

20 Scopus citations

Abstract

The increase in life expectancy spells disaster at retirement. One can solve this problem by investing in the maximum geometric mean (MGM) portfolio, which is empirically composed from equity. For a T =30 year horizon or more, the MGM portfolio dominates other investment strategies by almost first-degree stochastic dominance. The MGM portfolio also maximizes the expected value of the commonly employed preferences and prospect theory value function, for various loss aversion parameters and various reference points, for T ≥ 10. Life-cycle funds would increase virtually all investors' welfare by shifting to the MGM portfolio so long as the investment horizon is at least 10 years.

Original languageEnglish
Pages (from-to)1415-1430
Number of pages16
JournalManagement Science
Volume62
Issue number5
DOIs
StatePublished - May 2016

Bibliographical note

Publisher Copyright:
©2016 INFORMS.

Keywords

  • Almost stochastic dominance
  • Asymptotic stochastic dominance
  • First-degree stochastic dominance
  • FSD violation area
  • Life-cycle funds
  • Maximum geometric mean
  • Prospect theory

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