IDEAS home Printed from https://ideas.repec.org/a/taf/applec/45y2013i5p605-610.html
   My bibliography  Save this article

Time diversification under loss aversion: a bootstrap analysis

Author

Listed:
  • Wai Mun Fong

Abstract

We examine the problem of time diversification from the viewpoint of prospect theory investors. We use a block bootstrap approach to generate returns of US stocks and Treasury bills for time horizons ranging from 1 year to 20 years. On average, value functions computed using these bootstrapped returns are mainly positive and increase monotonically with the time horizon. The strategy that yields the highest average value function is the one that buys and holds an all-equity portfolio for 20 years. In contrast, mean-variance optimal portfolios are more conservative, with the optimal proportion of the portfolio invested in stocks declining with time horizon. Our results suggest that time diversification ought to be viewed more favourably by prospect theory investors than by mean-variance investors.

Suggested Citation

  • Wai Mun Fong, 2013. "Time diversification under loss aversion: a bootstrap analysis," Applied Economics, Taylor & Francis Journals, vol. 45(5), pages 605-610, February.
  • Handle: RePEc:taf:applec:45:y:2013:i:5:p:605-610
    DOI: 10.1080/00036846.2011.608643
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2011.608643
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/00036846.2011.608643?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Li, Dian-Qing & Tang, Xiao-Song & Phoon, Kok-Kwang, 2015. "Bootstrap method for characterizing the effect of uncertainty in shear strength parameters on slope reliability," Reliability Engineering and System Safety, Elsevier, vol. 140(C), pages 99-106.
    2. Jean-Baptiste Hasse & Christelle Lecourt & Souhila Siagh, 2023. "Institutional Stock-Bond Portfolios Rebalancing and Financial Stability," AMSE Working Papers 2322, Aix-Marseille School of Economics, France.

    More about this item

    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:taf:applec:45:y:2013:i:5:p:605-610. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    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.