To revise or not to revise? This is the question

Haim Levy*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Buy and hold and periodical revisions are two competing investment strategies. Revising to the optimal one-period investment weights seemingly dominates the buy-and-hold strategy with random and uncontrolled investment weights determined by asset price changes. This intuition is misleading as both investment strategies are theoretically included in the risk aversion efficient set. Considering only economically relevant preferences, with stocks-bonds portfolios, both strategies are empirically included in the risk aversion efficient set as long as the investment horizon is shorter than 20 years. However, for an investment horizon longer than twenty years, the buy and hold strategy empirically dominates the revision strategy by Almost First-degree Stochastic Dominance (AFSD) rule, namely by all economically relevant utility functions. When the horizon is indefinitely long, holding only stocks dominates the stock–bond portfolios of both the B&H(S) and the RV(S). However, this theoretical result may be practically irrelevant for most investors with a horizon shorter than 20 years.

Original languageEnglish
JournalAnnals of Operations Research
DOIs
StateAccepted/In press - 2024

Bibliographical note

Publisher Copyright:
© The Author(s) 2024.

Keywords

  • Almost First-degree Stochastic Dominance (AFSD)
  • Buy- and- Hold Strategy B&H(S)
  • G11
  • G12
  • Revisions strategy(RV(S)

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