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Efficiency of Dynamic Portfolio Choices: An Experiment

Author

Listed:
  • Jacopo Magnani
  • Jean Paul Rabanal
  • Olga A Rud
  • Yabin Wang

Abstract

We study the efficiency of dynamic portfolio choices using the nonparametric methods of Dybvig (1988) and Post (2003). We compare a dynamic portfolio task against an equivalent static Arrow-Debreu problem under two alternative environments: (1) nonpooled withterminal states and (2) pooled withunique terminal states. The results suggest that, within each environment, efficiency is lower in a static format and when the number of final states is larger. In the nonpooled dynamic task, which allows for path dependent strategies, we find that a form of stop-loss strategy drives efficiency losses.

Suggested Citation

  • Jacopo Magnani & Jean Paul Rabanal & Olga A Rud & Yabin Wang, 2022. "Efficiency of Dynamic Portfolio Choices: An Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 35(3), pages 1279-1309.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:3:p:1279-1309.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab071
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    Cited by:

    1. Brendan K. Beare, 2023. "Optimal measure preserving derivatives revisited," Mathematical Finance, Wiley Blackwell, vol. 33(2), pages 370-388, April.
    2. Duffy, John & Rabanal, Jean Paul & Rud, Olga A., 2023. "Market reactions to stock splits: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 325-345.
    3. Brice Corgnet & Roberto Hernán González, 2023. "On The Appeal Of Complexity," Working Papers 2312, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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