Efficient gradualism in intertemporal portfolios

✍ Scribed by Ronald J. Balvers; Douglas W. Mitchell

• Book ID: 104293642
• Publisher: Elsevier Science
• Year: 2000
• Tongue: English
• Weight: 164 KB
• Volume: 24
• Category: Article
• ISSN: 0165-1889
• DOI: 10.1016/s0165-1889(98)00066-9

✦ Synopsis

This paper examines intertemporal portfolio plans under autocorrelation in asset returns, and considers whether these plans conform to the common advice that risky assets be bought gradually and then held in decreasing amounts as the investment horizon approaches. Given elliptical returns, optimal portfolio plans with precommitment must be mean}variance e$cient. Then, for ARMA (1, 1) parameterizations with negative autocorrelation, the age e!ect (gradual diminishing of risky holdings as the horizon approaches) is con"rmed, as is dollar-cost averaging (gradual entry into the risky asset) for su$ciently distant horizons. For a numerically analyzed alternative bivariate returns process, only the age e!ect is con"rmed.