Please use this identifier to cite or link to this item: https://doi.org/10.1080/00036846.2011.608643
Title: Time diversification under loss aversion: A bootstrap analysis
Authors: Fong, W.M. 
Keywords: Bootstrap
Loss aversion
Prospect theory
Time diversification
Issue Date: 2013
Source: Fong, W.M. (2013). Time diversification under loss aversion: A bootstrap analysis. Applied Economics 45 (5) : 605-610. ScholarBank@NUS Repository. https://doi.org/10.1080/00036846.2011.608643
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. © 2011 Copyright Taylor and Francis Group, LLC.
Source Title: Applied Economics
URI: http://scholarbank.nus.edu.sg/handle/10635/44428
ISSN: 00036846
DOI: 10.1080/00036846.2011.608643
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