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Books > Business & Economics > Finance & accounting > Finance > Investment & securities
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Stocks, Bonds, And The Investment Horizon: Decision-making For The Long Run (Hardcover)
Loot Price: R3,949
Discovery Miles 39 490
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Stocks, Bonds, And The Investment Horizon: Decision-making For The Long Run (Hardcover)
Expected to ship within 9 - 15 working days
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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.
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