IDEAS home Printed from https://ideas.repec.org/a/nos/voprec/y2015id123.html
   My bibliography  Save this article

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

Author

Listed:
  • A. Abramov
  • A. Radygin
  • M. Chernova

Abstract

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.

Suggested Citation

  • A. Abramov & A. Radygin & M. Chernova, 2015. "Long-term Portfolio investment: New insight into Return and Risk," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 10.
    • Handle: RePEc:nos:voprec:y:2015:id:123
    DOI: 10.32609/0042-8736-2015-10-54-77
    as

    Download full text from publisher

    File URL: https://www.vopreco.ru/jour/article/viewFile/123/123
    Download Restriction: no
    File URL: https://libkey.io/10.32609/0042-8736-2015-10-54-77?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. A. Abramov & A. Radygin & M. Chernova & K. Akshentseva., 2015. "Effectiveness of Pension Saving Management: Theoretical and Empirical Aspects," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 7.
    3. Delong J. Bradford, 2008. "Stocks for the Long Run," The Economists' Voice, De Gruyter, vol. 5(7), pages 1-2, November.
    4. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    5. J. Bradford DeLong & Konstantin Magin, 2009. "The U.S. Equity Return Premium: Past, Present, and Future," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 193-208, Winter.
    6. Roger G. Ibbotson & Peng Chen, 2003. "Long-Run Stock Returns: Participating in the Real Economy," Yale School of Management Working Papers ysm354, Yale School of Management.
    7. A. Abramov & A. Radygin & M. Chernova/, 2014. "Financial Markets Regulation: Models, Evolution, Efficiency," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 2.
    8. Robertson, Donald & Wright, Stephen, 1998. "The Good News and the Bad News about Long-run Stock Market Returns," Cambridge Working Papers in Economics 9822, Faculty of Economics, University of Cambridge.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liudmyla Zakharkina & Maryna Abramchuk, 2018. "The Correctness Of The Capm-Model Application In The Ukrainian Reality In Terms Of Investors Financial Security," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 4(1).
    2. Sayema Sultana & Norhayah Zulkifli & Dalilawati Zainal, 2018. "Environmental, Social and Governance (ESG) and Investment Decision in Bangladesh," Sustainability, MDPI, vol. 10(6), pages 1-19, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. William Goetzmann & Roger Ibbotson, 2005. "History and the Equity Risk Premium," Yale School of Management Working Papers ysm448, Yale School of Management.
    2. Javier Lopez Bernardo, 2016. "A post-Keynesian theory for the yield on equity markets," Working Papers PKWP1613, Post Keynesian Economics Society (PKES).
    3. Avdis, Efstathios & Wachter, Jessica A., 2017. "Maximum likelihood estimation of the equity premium," Journal of Financial Economics, Elsevier, vol. 125(3), pages 589-609.
    4. Lin, Wen-chang & Lu, Jin-ray, 2012. "Risky asset allocation and consumption rule in the presence of background risk and insurance markets," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 150-158.
    5. Yosef Bonaparte, 2006. "Why do Wealthy Investors have a Higher Return on their Stocks?," 2006 Meeting Papers 286, Society for Economic Dynamics.
    6. Marco Mele, 2014. "Open-End Fund Performance Persistence: A Study on KC Libra Fund," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 3(1), pages 1-8.
    7. Emmanuel Jurczenko & Bertrand Maillet & Paul Merlin, 2008. "Efficient Frontier for Robust Higher-order Moment Portfolio Selection," Post-Print halshs-00336475, HAL.
    8. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2011. "The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World," Working Papers 11002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    9. Argandoña, Antonio, 2013. "Irving Fisher: un gran economista," IESE Research Papers D/1082, IESE Business School.
    10. Engel, Charles & Frankel, Jeffrey A. & Froot, Kenneth A. & Rodrigues, Anthony P., 1995. "Tests of conditional mean-variance efficiency of the U.S. stock market," Journal of Empirical Finance, Elsevier, vol. 2(1), pages 3-18, March.
    11. Mencía, Javier, 2012. "Assessing the risk-return trade-off in loan portfolios," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1665-1677.
    12. Mariia Belaia & Michael Funke & Nicole Glanemann, 2017. "Global Warming and a Potential Tipping Point in the Atlantic Thermohaline Circulation: The Role of Risk Aversion," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(1), pages 93-125, May.
    13. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.
    14. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    15. Bisetti, Emilio & Favero, Carlo A. & Nocera, Giacomo & Tebaldi, Claudio, 2017. "A Multivariate Model of Strategic Asset Allocation with Longevity Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(5), pages 2251-2275, October.
    16. Eckhard Platen, 2005. "On The Role Of The Growth Optimal Portfolio In Finance," Australian Economic Papers, Wiley Blackwell, vol. 44(4), pages 365-388, December.
    17. André, Eric, 2014. "Optimal portfolio with vector expected utility," Mathematical Social Sciences, Elsevier, vol. 69(C), pages 50-62.
    18. van Ewijk, Casper & de Groot, Henri L.F. & Santing, A.J. (Coos), 2012. "A meta-analysis of the equity premium," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 819-830.
    19. Fernandez, Pablo & Aguirreamalloa, Javier & Liechtenstein, Heinrich, 2009. "The equity premium puzzle: High required equity premium, undervaluation and self fulfilling prophecy," IESE Research Papers D/821, IESE Business School.
    20. Aase, Knut K., 2015. "Life Insurance And Pension Contracts I: The Time Additive Life Cycle Model," ASTIN Bulletin, Cambridge University Press, vol. 45(1), pages 1-47, January.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nos:voprec:y:2015:id:123. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: NEICON (email available below). General contact details of provider: https://www.vopreco.ru .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.