TY - JOUR
T1 - To revise or not to revise? This is the question
AU - Levy, Haim
N1 - Publisher Copyright:
© The Author(s) 2024.
PY - 2024
Y1 - 2024
N2 - 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.
AB - 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.
KW - Almost First-degree Stochastic Dominance (AFSD)
KW - Buy- and- Hold Strategy B&H(S)
KW - G11
KW - G12
KW - Revisions strategy(RV(S)
UR - http://www.scopus.com/inward/record.url?scp=85202202344&partnerID=8YFLogxK
U2 - 10.1007/s10479-024-06214-y
DO - 10.1007/s10479-024-06214-y
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AN - SCOPUS:85202202344
SN - 0254-5330
JO - Annals of Operations Research
JF - Annals of Operations Research
ER -