Serial Correlation of Asset Returns and Optimal Portfolios for the Long and Short Term PDF Download
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Author: Stanley Fischer
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 48
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Book Description
Optimal portfolios differ according to the length of time they are held without being rebalanced. For the case in which asset returns are identically and independently distributed, it has been shown that optimal portfolios become less diversified as the holding period lengthens. We show that the anti-diversification result does not obtain when asset returns are serially correlated, and examine properties of asymptotic portfolios for the case where the short term interest rate, although known at each moment of time, may change unpredictably over time. The theoretical results provide no presumption about the effects of the length of the holding period on the optimal portfolio. Using estimated processes for stock and bill returns, we show that calculated optimal portfolios are virtually invariant to the length of the holding period. The estimated processes for asset returns also imply very little difference between portfolios calculated ignoring changes in the investment opportunity set and those obtained when the investment opportunity set changes over time.
Author: Stanley Fischer
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 48
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Book Description
Optimal portfolios differ according to the length of time they are held without being rebalanced. For the case in which asset returns are identically and independently distributed, it has been shown that optimal portfolios become less diversified as the holding period lengthens. We show that the anti-diversification result does not obtain when asset returns are serially correlated, and examine properties of asymptotic portfolios for the case where the short term interest rate, although known at each moment of time, may change unpredictably over time. The theoretical results provide no presumption about the effects of the length of the holding period on the optimal portfolio. Using estimated processes for stock and bill returns, we show that calculated optimal portfolios are virtually invariant to the length of the holding period. The estimated processes for asset returns also imply very little difference between portfolios calculated ignoring changes in the investment opportunity set and those obtained when the investment opportunity set changes over time.
Author: Stanley Fischer
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
Optimal portfolios differ according to the length of time they are held without being rebalanced. For the case in which asset returns are identically and independently distributed, it has been shown that optimal portfolios become less diversified as the holding period lengthens.We show that the anti-diversification result does not obtain when asset returns are serially correlated, and examine properties of asymptotic portfolios for the case where the short term interest rate, although known at each moment of time, may change unpredictably over time. The theoretical results provide no presumption about the effects of the length of the holding period on the optimal portfolio. Using estimated processes for stock and bill returns, we show that calculated optimal portfolios are virtually invariant to the length of the holding period. The estimated processes for asset returns also imply very little difference between portfolios calculated ignoring changes in the investment opportunity set and those obtained when the investment opportunity set changes over time.
Author: Stanley FISCHER
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Stanley Fischer
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
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Book Description
If asset returns have different dynamics, then their short and long run risk characteristics differ. For instance, if returns on one asset follow a random walk, it is very risky to hold for the long term even if it is quite safe for the short term. This paper examines the effects of different returns dynamics of assets on optimal portfolio behavior, for Portfolios held for differing lengths of times. It then examines the evidence on the dynamics of stock and bill returns in the United States. The evidence is that bill returns are more highly serially correlated than stock returns. Thus their riskiness relative to that of stocks rises the longer they are held. optimal portfolios are simulated, and it is shown that optimal port- folio proportions are not very sensitive to the length of the holding period of the portfolio.
Author: Leonard C Maclean
Publisher: World Scientific
ISBN: 981446581X
Category : Business & Economics
Languages : en
Pages : 883
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Book Description
This volume provides the definitive treatment of fortune's formula or the Kelly capital growth criterion as it is often called. The strategy is to maximize long run wealth of the investor by maximizing the period by period expected utility of wealth with a logarithmic utility function. Mathematical theorems show that only the log utility function maximizes asymptotic long run wealth and minimizes the expected time to arbitrary large goals. In general, the strategy is risky in the short term but as the number of bets increase, the Kelly bettor's wealth tends to be much larger than those with essentially different strategies. So most of the time, the Kelly bettor will have much more wealth than these other bettors but the Kelly strategy can lead to considerable losses a small percent of the time. There are ways to reduce this risk at the cost of lower expected final wealth using fractional Kelly strategies that blend the Kelly suggested wager with cash. The various classic reprinted papers and the new ones written specifically for this volume cover various aspects of the theory and practice of dynamic investing. Good and bad properties are discussed, as are fixed-mix and volatility induced growth strategies. The relationships with utility theory and the use of these ideas by great investors are featured.Contents: "The Early Ideas and Contributions: "Introduction to the Early Ideas and ContributionsExposition of a New Theory on the Measurement of Risk (translated by Louise Sommer) "(D Bernoulli)"A New Interpretation of Information Rate "(J R Kelly, Jr)"Criteria for Choice among Risky Ventures "(H A Latan)"Optimal Gambling Systems for Favorable Games "(L Breiman)"Optimal Gambling Systems for Favorable Games "(E O Thorp)"Portfolio Choice and the Kelly Criterion "(E O Thorp)"Optimal Investment and Consumption Strategies under Risk for a Class of Utility Functions "(N H Hakansson)"On Optimal Myopic Portfolio Policies, with and without Serial Correlation of Yields "(N H Hakansson)"Evidence on the ?Growth-Optimum-Model? "(R Roll)""Classic Papers and Theories: "Introduction to the Classic Papers and TheoriesCompetitive Optimality of Logarithmic Investment "(R M Bell and T M Cover)"A Bound on the Financial Value of Information "(A R Barron and T M Cover)"Asymptotic Optimality and Asymptotic Equipartition Properties of Log-Optimum Investment "(P H Algoet and T M Cover)"Universal Portfolios "(T M Cover)"The Cost of Achieving the Best Portfolio in Hindsight "(E Ordentlich and T M Cover)"Optimal Strategies for Repeated Games "(M Finkelstein and R Whitley)"The Effect of Errors in Means, Variances and Co-Variances on Optimal Portfolio Choice "(V K Chopra and W T Ziemba)"Time to Wealth Goals in Capital Accumulation "(L C MacLean, W T Ziemba, and Y Li)"Survival and Evolutionary Stability of Rule the Kelly "(I V Evstigneev, T Hens, and K R Schenk-Hopp)"Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes "(Y Lv and B K Meister)""The Relationship of Kelly Optimization to Asset Allocation: "Introduction to the Relationship of Kelly Optimization to Asset AllocationSurvival and Growth with a Liability: Optimal Portfolio Strategies in Continuous Time "(S Browne)"Growth versus Security in Dynamic Investment Analysis "(L C MacLean, W T Ziemba, and G Blazenko)"Capital Growth with Security "(L C MacLean, R Sanegre, Y Zhao, and W T Ziemba)"
Author: Didier Maillard
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
Asset returns in efficient markets should not display serial correlations. Otherwise, asset prices would be predictable to a certain extent and arbitrage opportunities would appear, contradicting the assumption of efficiency.Lack of serial correlation is considered to be true for most sufficiently traded financial assets. For other assets, such as real assets, and in particular for real estate, a substantial level of serial correlation is suspected, and, as will be seen, verified in practice. There are many factors that may contribute to a high level of serial correlation: high transaction costs, information imperfections, scarcity of transactions, and role of surveys instead of transactions in the process of price formation...This short paper focuses on one hidden factor: averaging. As transactions are scarce, and are related to heterogeneous assets, price indices must be built so as to encompass a minimal period of time: one month at least, generally a quarter, and the resulting index is computed as an average over that period.We show that averaging introduces a .25 serial correlation for basically non-serially correlated asset price moves. For genuinely serially correlated series, averaging increases the measured serial correlation. We check those findings on two large US asset classes: residential real estate and equity.
Author: Kent Douglas Daniel
Publisher:
ISBN:
Category : Rate of return
Languages : en
Pages : 404
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Book Description
Author: Vasant Naik
Publisher: CFA Institute Research Foundation
ISBN: 1944960155
Category : Business & Economics
Languages : en
Pages : 192
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Book Description
Author: Charles Mark Jones
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 230
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Book Description
Author: John Y. Campbell
Publisher: OUP Oxford
ISBN: 019160691X
Category : Business & Economics
Languages : en
Pages : 272
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Book Description
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
