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Stocks, bonds, and the investment horizon: decision-making for the long run

By:

Levy, Haim

Material type: Text

TextPublication details: World Scientific Publishing Co. Pte. Ltd. Singapore 2025Description: xv, 477 pISBN:

9798886131109

Subject(s):

DDC classification:

332.632 LEV

Summary: A century ago, life expectancy was roughly 40 years, hence all income could be consumed, as for most people, there was no need to save for retirement. Today, things have drastically changed: Life expectancy exceeds 80 years in many countries, and one should expect to live and consume many years after retirement. Thus, we have many investors with various investment horizons, where the length of the investment horizon becomes a crucial factor in determining the best investment diversification. This book analyzes the effect of the investment horizon on the optimal diversification, specifically between stocks and bonds: Should a young investor and an older investor have the same portfolio? Is it recommended to savers for retirement to change the asset allocation between stocks and bonds as they grow older, as life cycle mutual funds do in practice? Is the idiom "stocks for the long run" backed by scientific evidence? We analyze for which horizons it is recommended to employ the popular Mean–Variance rule and for which horizons employing this rule induces an economic distortion, hence a loss to the investors. It is shown that all relevant parameters for investment choice (means, variances, and correlations) change in a non-linear way with the horizon, a fact that makes the investment horizon crucial for investment choices. Similarly, the popular Sharpe, Treynor, and Jensen performance indices vary with the assumed horizon even in the case of independence over time. To analyze all the above issues, we employ the Mean–Variance rule and Stochastic Dominance rules, as well as direct expected utility calculations. (https://www.worldscientific.com/worldscibooks/10.1142/12665#t=aboutBook)

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Holdings
Item type	Current library	Collection	Call number	Copy number	Status	Date due	Barcode
Book	Indian Institute of Management LRC General Stacks	Finance & Accounting	332.632 LEV (Browse shelf(Opens below))	1	Available		007786

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Previous	332.63 ZHA Navigating the factor zoo: the science of quantitative investing	332.632 DUF Derivates unlocked: a practitioner's perspective	332.632 KAN Fixed income securities: valuation and risk management	332.632 LEV Stocks, bonds, and the investment horizon: decision-making for the long run	332.632 MOY Firm, equity asset, and fixed income securities valuation: practical examples and case studies for accounting and financial analyst students	332.632 OBA Financial innovation in the banking industry: the case of asset securitization	332.632 ORR Cash management and the demand for money	Next

A century ago, life expectancy was roughly 40 years, hence all income could be consumed, as for most people, there was no need to save for retirement. Today, things have drastically changed: Life expectancy exceeds 80 years in many countries, and one should expect to live and consume many years after retirement. Thus, we have many investors with various investment horizons, where the length of the investment horizon becomes a crucial factor in determining the best investment diversification.

This book analyzes the effect of the investment horizon on the optimal diversification, specifically between stocks and bonds: Should a young investor and an older investor have the same portfolio? Is it recommended to savers for retirement to change the asset allocation between stocks and bonds as they grow older, as life cycle mutual funds do in practice? Is the idiom "stocks for the long run" backed by scientific evidence? We analyze for which horizons it is recommended to employ the popular Mean–Variance rule and for which horizons employing this rule induces an economic distortion, hence a loss to the investors. It is shown that all relevant parameters for investment choice (means, variances, and correlations) change in a non-linear way with the horizon, a fact that makes the investment horizon crucial for investment choices. Similarly, the popular Sharpe, Treynor, and Jensen performance indices vary with the assumed horizon even in the case of independence over time. To analyze all the above issues, we employ the Mean–Variance rule and Stochastic Dominance rules, as well as direct expected utility calculations.

(https://www.worldscientific.com/worldscibooks/10.1142/12665#t=aboutBook)

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