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Short-horizon regulation for long-term investors


  • Shi, Zhen
  • Werker, Bas J.M.


We study the effects of imposing repeated short-horizon regulatory constraints on long-term investors. We show that Value-at-Risk and Expected Shortfall constraints, when imposed dynamically, lead to similar optimal portfolios and wealth distributions. We also show that, in utility terms, the costs of imposing these constraints can be sizeable. For a 96% funded pension plan, both an annual Value-at-Risk constraint and an annual Expected Shortfall constraint can lead to an economic cost of about 2.5–3.8% of initial wealth over a 15-year horizon.

Suggested Citation

  • Shi, Zhen & Werker, Bas J.M., 2012. "Short-horizon regulation for long-term investors," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3227-3238.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:12:p:3227-3238 DOI: 10.1016/j.jbankfin.2012.04.009

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    References listed on IDEAS

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    Cited by:

    1. Senderski, Marcin, 2014. "Assessing the strictness of portfolio-related regulation of pension funds: Rethinking the definition of prudent," MPRA Paper 56610, University Library of Munich, Germany.
    2. Steven Kou & Xianhua Peng, 2014. "On the Measurement of Economic Tail Risk," Papers 1401.4787,, revised Aug 2015.
    3. repec:dau:papers:123456789/13624 is not listed on IDEAS
    4. MacLean, Leonard C. & Zhao, Yonggan & Ziemba, William T., 2016. "Optimal capital growth with convex shortfall penalties," LSE Research Online Documents on Economics 65486, London School of Economics and Political Science, LSE Library.

    More about this item


    Portfolio choice; Value-at-Risk; Expected Shortfall; Pension funds;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors


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