Bonds versus stocks: Investors' age and risk taking
AbstractIt has become increasingly popular to advise investors to relocate their funds from a primarily stock portfolio to a primarily bond portfolio as they get older. However, the well-known decision rules such as mean-variance or stochastic dominance rules are unable to explain this common practice. Almost stochastic dominance (ASD) and almost mean-variance (AMV) approaches are used to examine the dominance of stock and bond portfolios. ASD and AMV rules unambiguously support the popular practice of advising higher stock to bond ratio for long investment horizons. Hence, we provide an explanation to the practitioners' recommendation within the expected utility paradigm.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 56 (2009)
Issue (Month): 6 (September)
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Web page: http://www.elsevier.com/locate/inca/505566
Asset allocation Life-cycle funds Almost stochastic dominance Almost mean-variance;
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