Investing for the Short and the Long Term
If asset returns have different dynamics, then their short and long run risk characteristics differ. For instance, if returns on one asset follow a random walk, it is very risky to hold for the long term even if it is quite safe for the short term. This paper examines the effects of different returns dynamics of assets on optimal portfolio behavior, for Portfolios held for differing lengths of times. It then examines the evidence on the dynamics of stock and bill returns in the United States. The evidence is that bill returns are more highly serially correlated than stock returns. Thus their riskiness relative to that of stocks rises the longer they are held. optimal portfolios are simulated, and it is shown that optimal port- folio proportions are not very sensitive to the length of the holding period of the portfolio.
|Date of creation:||Jun 1982|
|Date of revision:|
|Publication status:||published as Fischer, Stanley. "Investing for the Short and the Long Term." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 153-176.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ross, Stephen A., 1974. "Portfolio turnpike theorems for constant policies," Journal of Financial Economics, Elsevier, vol. 1(2), pages 171-198, July.
- Hakansson, Nils H, 1970. "Optimal Investment and Consumption Strategies Under Risk for a Class of Utility Functions," Econometrica, Econometric Society, vol. 38(5), pages 587-607, September.
- Goldman, M Barry, 1979. "Anti-Diversification or Optimal Programmes for Infrequently Revised Portfolios," Journal of Finance, American Finance Association, vol. 34(2), pages 505-16, May.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Merton, Robert C. & Samuelson, Paul A., 1974. "Fallacy of the log-normal approximation to optimal portfolio decision-making over many periods," Journal of Financial Economics, Elsevier, vol. 1(1), pages 67-94, May.
- Garbade, Kenneth & Wachtel, Paul, 1978. "Time variation in the relationship between inflation and interest rates," Journal of Monetary Economics, Elsevier, vol. 4(4), pages 755-765, November.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0922. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.