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

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  • 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
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    References listed on IDEAS

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    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. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    4. 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.
    5. 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.
    6. A. Abramov & A. Radygin & M. Chernova/, 2014. "Financial Markets Regulation: Models, Evolution, Efficiency," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 2.
    7. 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.
    8. Delong J. Bradford, 2008. "Stocks for the Long Run," The Economists' Voice, De Gruyter, vol. 5(7), pages 1-2, November.
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    Cited by:

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    2. 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).

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    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

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