Optimal Portfolios For Different Holding Periods

2010 ◽  
Vol 8 (10) ◽  
Author(s):  
Byeongyong Paul Choi ◽  
Sandip Mukherji
Keyword(s):  
Risk Premium ◽  
Bootstrap Method ◽  
Investment Horizon ◽  
Financial Assets ◽  
Small Company ◽  
Optimal Portfolios ◽  
Treasury Bills ◽  
Government Bonds ◽  
Holding Period ◽  
Random Samples

<p class="MsoBodyText" style="text-align: justify; line-height: normal; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">This study uses a block bootstrap method to construct random samples of returns of six major financial assets and identifies optimal portfolios for three different objectives relating to risk and return for short, medium, and long holding periods. Optimal portfolios minimizing risk consist solely of Treasury Bills and small company stocks for all periods, with an increasing allocation to small company stocks as the investment horizon lengthens. Optimal portfolios minimizing risk relative to return, as well as those maximizing the risk premium relative to risk, contain intermediate-term government bonds and stocks for all horizons, and the proportions of stocks in these portfolios increase with the investment horizon, small company stocks becoming the major component of the optimal portfolios for 10 years. These results indicate that, for investors optimizing any of these three objectives, the optimal portfolios contain increasing allocations of riskier assets, and decreasing allocations of safer assets, as the holding period increases.<strong style="mso-bidi-font-weight: normal;"></strong></span></span></p>

The nineteenth-century US whaling industry: Where is the risk premium? New materials facilitate updated view

2021 ◽  
Vol 33 (2) ◽  
pp. 344-363
Author(s):  
Barbara L. Coffey
Keyword(s):  
Nineteenth Century ◽  
Risk Premium ◽  
Financial Returns ◽  
New Materials ◽  
Government Bonds ◽  
Us Government ◽  
Whaling Industry ◽  
The Mean ◽  
Printed Materials

Materials that were born digital, and printed materials that have been digitized, have aided an updated examination of nineteenth-century US whaling voyages’ financial returns. Items included the American Offshore Whaling Voyages dataset from whalinghistory.org , The Whalemen’s Shipping List and Merchant’s Transcript, a congressman’s speech and a state’s census reports. These works and others, with analysis, showed that for the 11,257 analysable voyages ending in the 1800s, the mean return was 4.7% and 4.6% for whaling and US government bonds, respectively. Ideally, this work will place the nineteenth-century US whaling industry returns in context of other investments.

A Downside Risk Analysis of Inflation Hedging Capabilities of Individual Assets and Optimal Asset Allocation

2021 ◽  
Vol 8 (1) ◽  
pp. 80
Author(s):  
Aftab Hussain Tabassam ◽  
Zafar Iqbal ◽  
Arshad Ali Bhatti ◽  
Amna Mushtaq
Keyword(s):  
World Bank ◽  
Asset Allocation ◽  
Foreign Currency ◽  
Investment Horizon ◽  
Medium Term ◽  
Optimal Portfolios ◽  
Monthly Data ◽  
Short Run ◽  
Asset Classes ◽  
Inflation Hedging

The objective of this study is to examine the inflation hedging capabilities of most widely used asset classes in Pakistan. It also attempts to find out the possibility of creating an inflation protected optimal asset mix. The sample consists of monthly data of cash, gold, stocks, foreign currency, real estate and inflation from 2005 to 2015. The major sources of data are SBP, World Bank and Pakistan Statistics Bureau. The downside analysis of these assets concludes that cash act as an inflation hedge for all the investment horizons. The findings showed that the Gold and stocks also have inflation hedging abilities in short run which extend to medium term investment horizon for gold only, while stocks appear to be a good inflation hedge for longer investment horizons. This study also suggests that investors can strategically create optimal portfolios that are hedged against inflation.

scholarly journals A Balanced Portfolio Can Have a Higher Geometric Return than the Risky Asset

2021 ◽  
Vol 14 (9) ◽  
pp. 409
Author(s):  
Miriam Arden ◽  
Tiemen Woutersen
Keyword(s):  
Risk Premium ◽  
Large Fraction ◽  
Developed Countries ◽  
Policy Implications ◽  
Government Bonds ◽  
Stock Portfolios ◽  
Bond Portfolio ◽  
Target Date ◽  
Stock Portfolio ◽  
The U.S

In the U.S., the geometric return on stocks has been higher than the geometric return on bonds over long periods. We study whether balanced portfolios have a larger geometric return (and expected log return) than stock portfolios when the risk premium is low. We use a theoretical model and historical data and find that this is the case. This low-risk premium is often observed in other developed countries. Further, in the past two decades, a balanced portfolio with 70% or 90% invested in the U.S. stock market (with the remainder invested in U.S. government bonds) performed better than a 100% stock or bond portfolio. The reason for this is that a pure stock portfolio loses a large fraction of its value in a downturn. We show that this result is not driven by outliers, and that it occurs even when the returns are log normally distributed. This result has broad policy implications for the construction of pension systems and target-date mutual funds.

Globalization of Financial Risks and Evaluation of Common Stocks

2014 ◽  
pp. 231-240
Author(s):  
Dilaysu Cinar
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Global Economy ◽  
Cash Flows ◽  
Financial Risks ◽  
Treasury Bills ◽  
Government Bonds ◽  
Common Stocks ◽  
Management Policies ◽  
Globalization Strategy

Risk can be defined as uncertainty about the events that will occur in the future. Risks are encountered in all areas of life, and become more important when it comes to financial markets. Risk in financial markets is defined as investment securities. If the investment vehicle is government bonds or treasury bills, they are considered to be free of risk. Because of the sudden changes in exchange rates in the process of globalization or fluctuations in interest rates influencing the cash flows of companies, most companies consider hedging as a viable part of the globalization strategy. Risk management policies to ease problems and disasters, which may arise from the use of instruments. The stock market serves as a bridge between economic activity and finance under favor of functions such as reducing the risk of investment, and it meets the capital needs for companies. For this reason, the development of stock markets plays an important role for the global economy and finance. Thus, the aim of this chapter is to introduce financial risks and their effect on common stocks.

Endogenous money

2019 ◽  
pp. 124-148
Author(s):  
Kazimierz Łaski
Keyword(s):  
Economic Recession ◽  
Limited Resource ◽  
Financial Assets ◽  
Lender Of Last Resort ◽  
Government Bonds ◽  
Balance Sheets ◽  
Money Economy ◽  
Production And Distribution ◽  
Endogenous Money ◽  
Bank Balance Sheets

The capitalist economy is a money economy. But how is money created and destroyed? Is it exogenous, a limited resource like gold, or is it endogenous, emerging from processes of production and distribution? How is credit generated and what is the relationship between credit and savings? One form of endogeneity arises from bank balance sheets and the theory of the monetary circuit. This reveals the credit relations between households and firms. However, banks also need a central bank as a lender of last resort. In recent years, central banks have deployed quantitative easing to deal with economic recession. The other form of endogeneity arises from the “verticalist” and the “horizontalist” analyses of the market for base money, whose demand and supply is brought into equilibrium by the money rate of interest. Government bonds are used in portfolios as risk-free financial assets.

The Risk and Reward of Investing a Lost Earnings Award: A Comparison of Stocks, Bonds, and Bills

2012 ◽  
Vol 23 (2) ◽  
pp. 199-207 ◽  
Author(s):  
Michael L. Nieswiadomy
Keyword(s):  
Growth Rate ◽  
Monte Carlo ◽  
Monte Carlo Simulations ◽  
Corporate Bonds ◽  
Present Value ◽  
Rates Of Return ◽  
Treasury Bills ◽  
Government Bonds

Abstract This note analyzes the risk and reward of investing the present value of a 40-year worklife of lost earnings (of $10,000 per year), discounted using rates of returns on various portfolios. Eight portfolios are examined: 100% in Treasury bills; 100% in intermediate-term government bonds; 100% in corporate bonds; four mixtures of the S&P 500, intermediate-term government bonds, and Treasury bills; and 100% in the S&P 500. The rates of return on the portfolios and the growth rate in hourly earnings are randomly selected from a year in the 1965–2010 period. The results of 10,000 Monte Carlo simulations indicate that a 40-year portfolio will face “ruin” roughly 51% to 52% of the time for all portfolios. However, the portfolios differ greatly in the median year of ruin (if ruin occurs), ranging from a high of the 38th year for a 100% Treasury bills portfolio, to the 22nd year for a 100% S&P 500 portfolio. The percent of time that the award greatly enriches (with an ending balance over $1,000,000) the plaintiff varies greatly as well. A 100% S&P 500 portfolio enriches the plaintiff 36.8% of the time; a portfolio of 30% S&P 500, 30% intermediate government bonds, and 40% Treasury bills enriches 14.5% of the time; while a 100% Treasury bills portfolio will virtually never enrich.

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