Bonds versus stocks: Investors' age and risk taking

Turan G. Bali*, K. Ozgur Demirtas, Haim Levy, Avner Wolf

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

59 Scopus citations

Abstract

It has become increasingly popular to advise investors to relocate their funds from a primarily stock portfolio to a primarily bond portfolio as they get older. However, the well-known decision rules such as mean-variance or stochastic dominance rules are unable to explain this common practice. Almost stochastic dominance (ASD) and almost mean-variance (AMV) approaches are used to examine the dominance of stock and bond portfolios. ASD and AMV rules unambiguously support the popular practice of advising higher stock to bond ratio for long investment horizons. Hence, we provide an explanation to the practitioners' recommendation within the expected utility paradigm.

Original languageEnglish
Pages (from-to)817-830
Number of pages14
JournalJournal of Monetary Economics
Volume56
Issue number6
DOIs
StatePublished - Sep 2009

Keywords

  • Almost mean-variance
  • Almost stochastic dominance
  • Asset allocation
  • Life-cycle funds

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