Inefficient Dynamic Portfolio Strategies or How to Throw Away a Million Dollars in the Stock Market
AbstractA number of portfolio strategies followed by practitioners are dominated because they are incompletely diversified over time. The Payoff Distribution Pricing Model is used to compute the cost of following undiversified strategies. Simple numerical examples illustrate the technique, and computer-generated examples provide realistic estimates of the cost of some typical policies using reasonable parameter values. The cost can be substantial and should not be ignored by practitioners. A section on generalizations shows how to extend the analysis to term structure models and other general models of returns.
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Bibliographic InfoArticle provided by Society for Financial Studies in its journal Review of Financial Studies.
Volume (Year): 1 (1988)
Issue (Month): 1 ()
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Other versions of this item:
- Philip H. Dybvig, 1987. "Inefficient Dynamic Portfolio Strategies or How to Throw Away a Million Dollars in the Stock Market," Cowles Foundation Discussion Papers 826R, Cowles Foundation for Research in Economics, Yale University, revised Jan 1988.
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