Long-term Portfolio investment: New insight into Return and Risk

2015 ◽  
pp. 54-77
Author(s):  
A. Abramov ◽  
A. Radygin ◽  
M. Chernova
Keyword(s):  
Portfolio Management ◽  
Traditional Approach ◽  
Investment Strategy ◽  
Strategy Development ◽  
Investment Horizon ◽  
Investment Strategies ◽  
Fixed Income ◽  
Portfolio Rebalancing ◽  
Holding Period

The article examines the influence of investment horizon increase on comparative advantages of main asset classes and on the principles of investment strategy development. Unlike in the traditional approach of portfolio management theory, the study shows that for long-term investments corporate bonds have the advantage over equity in terms of return-risk tradeoff. This fact argues in favor of the fixed-income oriented (including infrastructure bonds) investment strategies for pension funds and institutional investors. The article draws special attention to the importance of regular portfolio rebalancing for long-term investors. In this case the variation of returns decreases and the variation of risks increases with the holding period. Consequently, with horizon increase a long-term investor should allocate more assets in the low-risk financial instruments in order to keep a certain level of return-risk tradeoff. This argument becomes increasingly important for the purposes of pension savings management.

Mutual fund management in the period of financial crisis

2017 ◽  
Vol 31 (2) ◽  
pp. 75-81
Author(s):  
О. А. Bank
Keyword(s):  
Financial Crisis ◽  
Mutual Fund ◽  
Economic Recession ◽  
Investment Strategy ◽  
Economic Conditions ◽  
Investment Strategies ◽  
Fixed Income ◽  
Fund Management ◽  
Fund Managers ◽  
Different Types

Mutual fund managers do not have full freedom in choosing investment strategies - they are limited both by the laws and by investment declarations of the funds. Investment strategy cannot be fully changed even in financial crisis but it only can be corrected. This fact could not be characterized as a disadvantage because different types of funds are efficient in different time even during the same economic recession. Mutual fund manager should rationally invest funds of their clients: it is better to keep the maximum possible part of the portfolio in cash and instruments with fixed income on the declining market and it is better to keep shares on the rising market. However the choice of bonds also as the choice of shares should pay respect for the features of these instruments during unfavorable economic conditions. Russian mutual fund management differs from fund management in other countries as in stable economic situation so in the circumstances of financial crisis.

scholarly journals Effectiveness of Selected Investment Strategies in the Opinion of Polish Individual Investors Depending on their Personal Preferences

2020 ◽  
Vol 13 (4) ◽  
pp. 442-451
Author(s):  
Katarzyna Daniluk
Keyword(s):  
Risk Aversion ◽  
Investment Strategy ◽  
Capital Allocation ◽  
Survey Method ◽  
Individual Investors ◽  
Investment Horizon ◽  
Investment Strategies ◽  
Research Material ◽  
Individual Needs ◽  
Level Of Risk

SummarySubject and purpose of work: The work aimed at identifying and characterising the interdependence between Polish investors’ personal preferences in investing and their opinion about the effectiveness of investment strategies. It was examined how the adopted investment horizon, the level of risk aversion and the time spent daily on investing impact the interviewees’ experiences and opinions on the effectiveness of investment strategies.Materials and methods: As the survey method was employed, a questionnaire was sent to randomly selected Polish individual investors. The research material consisted of 652 questionnaire forms.Results: The study showed a relevant dependence between Polish investors’ personal preferences and their opinions on the effectiveness of the particular strategies.Conclusions: The interdependencies revealed in the study may be used by potential investors in the process of matching a strategy to individual needs so as to enhance the effectiveness of the choice. A higher awareness of the problem of matching an investment strategy to personal preferences will lead to improved effectiveness of capital allocation among Polish investors.

scholarly journals Gender Impact on Personal Investment Strategies

2021 ◽  
Vol 18 (1) ◽  
pp. 32-45
Author(s):  
Mintautė Mikelionytė ◽  
Aleksandra Lezgovko
Keyword(s):  
Financial Literacy ◽  
Economic Status ◽  
Investment Decision ◽  
Relevant Literature ◽  
Investment Strategy ◽  
Personal Finance ◽  
Strategy Development ◽  
Investment Strategies ◽  
Financial Decisions ◽  
Personal Investment

Abstract Research purpose. This study is dedicated to investigating the peculiarities of personal investment decisions among female and male investors to analyse the gender differences that occur during personal investment strategy establishment processes. This study is based on the literature research and aims at exploring the existing knowledge on financial behaviour and gender influence on personal investment selection. The importance and originality of this study are that it assesses the collective evidence in the personal investment field and explores its processes through the prism of gender impact. The understanding of the gender bias impact on the personal investment strategy development process can play an important role in addressing the issue of gender inequality in finance and investment areas. This paper is dedicated to answering the question of how gender impacts personal investment strategies. Design/ Methodology/ Approach. The major task was to conduct the research on the male and female personal investment decision peculiarities presented in literature sources and to prepare the survey to conduct practical research while applying theoretical knowledge and presenting the findings along with the suggestions on how to improve the female situation in investment field. Findings. The most prominent finding to emerge from this study is that females lack knowledge and understanding in finance and especially investment areas; therefore, this leads to inadequacy in self-confidence in finance and investment matters and, as a result, neglect of successful personal finance management and, more significantly, poor investment strategy decisions. Originality/ Value/ Practical implications. The main goal of the current study was to determine whether the gender difference exists in personal finance and especially investment area, to refine the reasons behind this phenomenon, to analyse what could be done to improve the situation and introduce suggestions for further research. The research was done based on relevant literature, reports, surveys, statistical data used for literature analysis, and Lithuania’s case study for the practical part of the research. The primary objectives were to find out what are the main peculiarities between males and females when it comes to personal investment strategy choices and to analyse financial literacy and investment fields through the female perspective. The main points revealed during this study were that men tend to invest more often than women, as females, in general, prefer to save rather than invest; women tend to choose less risky investment strategies compared to men or save rather than invest. The main factors of this phenomena are the influence of cultural, social, or psychological factors, low financial literacy level, differences in economic status, longer life expectancy, the lack of confidence when it comes to knowledge applied to the financial decisions; males are more likely to choose a higher-risk investment strategy and to be more confident in their investment ability even if they have less knowledge on the matter. The analysis of Lithuania’s case has also confirmed the main literature review findings and reported females to lack financial and investment knowledge, spare funds and prefer to save rather than invest or invest into the low-risk tools.

An analytical approach for behavioral portfolio model with time discounting preference

2018 ◽  
Vol 52 (3) ◽  
pp. 691-712
Author(s):  
Guang Yang ◽  
Xinwang Liu ◽  
Jindong Qin ◽  
Ahmed Khan
Keyword(s):  
Portfolio Selection ◽  
Investment Strategy ◽  
Cumulative Prospect Theory ◽  
Investment Strategies ◽  
Short Term ◽  
Time Discounting ◽  
Present Bias ◽  
Proposed Model ◽  
Portfolio Selection Model

This paper presents a behavioral portfolio selection model with time discounting preference. Firstly, we discuss the portfolio selection problem and then modify this model based on cumulative prospect theory (CPT) as well as considering investors’ time discounting preference in psychology. Furthermore, an analytical solution with satisfying behavior is given for our proposed model, the results show that when investors’ goals are very ambitious, they put a high proportion of their wealth in long-term goals and adopt aggressive investment strategies with high leverage to reach short-term goals and the overall investment strategy also displays high leverage. Finally, numerical analysis is given and it is shown that investor who tends to future bias performs adequate confidence and patience whereas investor with present bias is apt to the immediate interests.

Volatility Decay and Diversification Role of Timberland as the Investment Horizon Lengthens

2021 ◽  
Author(s):  
Weiyi Zhang ◽  
Bin Mei
Keyword(s):  
High Risk ◽  
Serial Correlation ◽  
Private Equity ◽  
The United States ◽  
Investment Horizon ◽  
Holding Period ◽  
Asset Portfolio ◽  
Public Equity

Abstract Under the mean-variance efficiency framework, we investigate the role of timberland asset in a mixed-asset portfolio in the United States. Starting from a single period (quarterly) view, we first reveal the crucial role of serial correlation in defining an asset’s financial performance. Accordingly, we modify return, volatility, and correlation for multiyear horizons to account for the nature of long-term investments. Our results show that, although timberland is persistent in all portfolios, private-equity timberland can be substituted by other liquid assets, including public-equity timberland, as the lengthening holding period substantially reduces their volatilities. We conclude that private-equity timberland is a risk diversifier regardless of the length of the investment horizon, whereas public-equity timberland becomes a suitable diversifier only for long-term investors with high risk tolerance. Study Implications: Serial correlation influences an asset’s return, risk, and correlation with other assets as the investment horizon lengthens. Volatilities of large-cap stocks and public timber real estate investment trusts decay significantly when the holding period is longer than three years. Therefore, these liquid assets become more efficient in the long run. Regardless of the length of the investment horizon, private-equity timberland acts as a risk diversifier in a mixed-asset portfolio, whereas public-equity timberland is a suitable diversifier only for high risk, long-term investors.

scholarly journals The Other Month Effect: Some Evidence from the Central and Eastern European Markets

2016 ◽  
Vol 66 (1) ◽  
pp. 107-124 ◽  
Author(s):  
Yi-Chieh Wen ◽  
Bin Li
Keyword(s):  
Portfolio Management ◽  
Abnormal Returns ◽  
The Other ◽  
January Effect ◽  
Investment Strategies ◽  
Eastern European ◽  
Holding Period ◽  
Local Risk ◽  
Different Characteristics ◽  
European Markets

January returns on stock markets can be used as a barometer for the subsequent 11-month holding period returns as documented by Cooper et al. (2006). We examine this apparent anomaly and analyze the effects of other holding periods of 1, 3, and 6 months in six Central and Eastern European transition economies from January 1991 through December 2013. Our results do not support the presence of the other January effect (OJE) in five of the six markets. Instead, the results reveal significant anomalies in non-January months and that such effects vary across markets. This latter evidence might reflect different characteristics in these economies, including diverse levels of market efficiency, local risk factors, and portfolio management among others. Furthermore, we construct a trading rule using the other month effect to illustrate the possibility of developing profitable investment strategies to earn abnormal returns.

scholarly journals APPLICABILITY OF CONTRARIAN INVESTMENT STRATEGIES IN SMALL CAPITALIZATION MARKETS: EVIDENCE FROM NASDAQ OMX VILNIUS

Ekonomika ◽  
2011 ◽  
Vol 90 (1) ◽  
pp. 101-114 ◽  
Author(s):  
Arvydas Paškevičius ◽  
Rūta Mickevičiūtė
Keyword(s):  
Economic Crisis ◽  
Rapid Growth ◽  
Investment Strategy ◽  
Investment Strategies ◽  
Contrarian Strategy ◽  
Holding Period ◽  
Market Index ◽  
The Subject ◽  
Nasdaq Omx

This study reviews previous research on the contrarian investment strategy as first analyzed by De Bondt and Thaler (1985), and aims at deepening and complementing the existing research on the subject. The paper analyses the results of applying the strategy to NASDAQ OMX Vilnius stocks over the period 2003–2010, dividing the testing into two groups: prior to the economic crisis and the crisis periods, based on the movement of the OMXV index. The method uses holding period returns in evaluating the standard contrarian investment strategy. The paper explains the methodology in detail and presents the findings which show no considerable holding period returns from the strategy in NASDAQ OMX Vilnius during the decline period; however, contrarian strategy seems to be a better option than a standard market index based portfolio during the periods of rapid growth when stocks are overrated.

Investments, Market Timing and Portfolio Performance across Indian Bull and Bear Markets

2017 ◽  
Vol 13 (3-4) ◽  
pp. 98-109
Author(s):  
Sunaina Kanojia ◽  
Neha Arora
Keyword(s):  
Stock Market ◽  
Market Timing ◽  
Investment Strategy ◽  
Portfolio Performance ◽  
Investment Strategies ◽  
Bear Market ◽  
Market Trends ◽  
Two Phases ◽  
The Universe

The returns generated from an investment alternative are exponentially higher when espoused with appropriate timings. This article expound on the market timing used by investors to formulate profitable investment strategies in the stock market, which requires gathering of information at both micro- and macro-levels along with market trends to make timely decisions and evaluating the universe of stocks available. The market trends are been broadly classified into bull and bear phases, which have dynamic influence on buying and selling in the stock market. Further, the study supports the retail investors’ participation in the market for long-term to generate higher returns as compared to other conventional alternatives. The study attempts to identify bull and bear market turning points using a formal turning point identification procedure and formulate a profitable investment strategy in bull or bear market phases to maximise the returns. Hence, the present study provides to understand how the two phases influence investment decisions and determine the implications of bull and bear market phases on investors’ investment strategy.

scholarly journals Financial Market Evaluative Inefficiencies and Companies Sub-Optimal Investment Choices: How to Get Out of the Shortermist Impasse?

2017 ◽  
Vol 9 (5) ◽  
pp. 143
Author(s):  
Bruna Ecchia
Keyword(s):  
Financial Market ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Minority Shareholders ◽  
Holding Period ◽  
Average Share ◽  
The Subject ◽  
Short Termism ◽  
Investment Choices

This paper examines, in an innovative way as compared to the literature on the subject, “whether, how and under what conditions” certain technical devices, such as so-called “loyalty bonuses,” devised to increase the holding period of shares, can effectively reach their goal of countering the short-termist tendency involved in company investment decisions. This trend is an expression of compliance toward the current short-termism of the financial market as evidenced by the enormous shortening of the average share-holding period. This is not a recent phenomenon but it becomes more marked in times of crisis. Thus many projects, although functional to a company’s competitiveness, are rejected simply because of their deferred profitability and therefore incompatibility with the short market horizon, more focused on results emerging from quarterly reports than on a company’s long-term choices for business development. If the market is unable to immediately and adequately incorporate into prices the benefits from deferred returns, shareholders can equally obtain them if they remain durably connected with the company, but this choice must be encouraged by appropriate incentives. The loyalty bonus may be useful for this purpose and for long-term company interests, because it contributes to a better alignment of shareholders’ expectations with a more long-term vision in investment strategy. However the bonus, rather than involving the minority shareholders in the enterprise’s “mission,” often degenerates into a Control Enhancing Mechanism, though with unusual effects, among which a situation of “captivity” for all shareholders, even and especially the majority shareholders. In any case the utility of the bonus can occur, especially in less efficient markets. In a fully efficient market it could be harmful.

Do lump-sum investing strategies really outperform dollar-cost averaging strategies?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Richard Lu ◽  
Vu Tran Hoang ◽  
Wing-Keung Wong
Keyword(s):  
High Risk ◽  
Asset Price ◽  
Trading Strategy ◽  
Performance Measure ◽  
Investment Horizon ◽  
Risky Assets ◽  
Content Type ◽  
Holding Period ◽  
Lump Sum

Purpose The literature has demonstrated that lump-sum (LS) outperforms dollar-cost averaging (DCA) in uptrend markets while DCA outperforms LS only when the asset price is mean-reverted or downtrend. To bridge the gap in the literature, this study aims to use both Sharpe ratio (SR) and economic performance measure (EPM) to compare the performance of DCA and LS under both accumulative and disaccumulative approaches when the asset price is simulated to be uptrend. Design/methodology/approach This study uses both disaccumulative and accumulative approaches to compare DCA with LS and uses both SR and EPM to evaluate their performance when the asset price is simulated to be uptrend. Instead of using the annualized returns that are commonly used by other DCA studies, we compute the holding-period returns in the comparison in this paper. Findings The simulation shows that no matter which approach is used, DCA outperforms LS in nearly all the cases in the less uptrend markets while DCA still performs better than LS in many cases of the uptrend markets, especially when the market is more volatile and investment horizon is long, regardless which approach the authors used. The authors also find more evidence supporting DCA over LS by using EPM, which is more suitable in the analysis because the returns generated by DCA are positive skewed and flat-tailed that are ignored when SR is used. Research limitations/implications The authors conclude that DCA is a better trading strategy than LS for investment even in the uptrend market, especially on high risky assets. Practical implications Investors could consider choosing DCA instead of LS as their trading strategy, especially when they prefer long term investment and investing in high-risk assets. Social implications Fund managers could consider recommending DCA to their customers, especially when they prefer long term investment and investing in high-risk assets. Originality/value This is the own study and, as far as the authors know, this is the first study in the literature uses both SR and EPM to compare the performance of DCA and LS under both accumulative and disaccumulative approaches when the asset price is simulated to be uptrend.

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