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Who should sell stocks?

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  • Paolo Guasoni
  • Ren Liu
  • Johannes Muhle‐Karbe

Abstract

Never selling stocks is optimal for investors with a long horizon and a realistic range of preference and market parameters, if relative risk aversion, investment opportunities, proportional transaction costs, and dividend yields are constant. Such investors should buy stocks when their portfolio weight is too low and otherwise hold them, letting dividends rebalance to cash over time rather than selling. With capital gains taxes, this policy outperforms both static buy‐and‐hold and dynamic rebalancing strategies that account for transaction costs. Selling stocks becomes optimal if either their target weight is low or intermediate consumption is substantial.

Suggested Citation

  • Paolo Guasoni & Ren Liu & Johannes Muhle‐Karbe, 2019. "Who should sell stocks?," Mathematical Finance, Wiley Blackwell, vol. 29(2), pages 448-482, April.
    • Handle: RePEc:bla:mathfi:v:29:y:2019:i:2:p:448-482
    DOI: 10.1111/mafi.12179
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