Long-term portfolio investments: New insight into return and risk
This article analyzes the impact of the increase of an investment horizon on the comparative advantages of the basic asset classes and on the principles of constructing the investment strategy. It demonstrates that the traditional approach of portfolio management theory, which states that investment...
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Voprosy Ekonomiki
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doaj-d7d5f066a0b247b0be7c7c1cf1b10fe72020-11-25T02:18:31ZengVoprosy EkonomikiRussian Journal of Economics2405-47392015-09-011327329310.1016/j.ruje.2015.12.001Long-term portfolio investments: New insight into return and riskAlexander Abramov0Alexander Radygin1Maria Chernova2Russian Presidential Academy of National Economy and Public Administration, Russian Presidential Academy of National Economy and Public Administration, Russian Presidential Academy of National Economy and Public Administration, This article analyzes the impact of the increase of an investment horizon on the comparative advantages of the basic asset classes and on the principles of constructing the investment strategy. It demonstrates that the traditional approach of portfolio management theory, which states that investments in stocks are preferable over bonds in terms of their long-run risk–return trade-offs, is by no means always consistent with empirical evidence. This article proves the opposite, i.e., that for long-term investors, investments in corporate bonds are more profitable in terms of the risk–return ratio than investments in stocks, arguing in favor of strategies pursued by pension funds and other institutional investors focused primarily on investments in fixed-income instruments, including infrastructural bonds. Emphasis is placed on the need for regular adjustments to long-term investors’ portfolios. As portfolios get older, those investors see a reduction in the returns’ dispersion, while differences in risk between various portfolios increase. This means that to maintain a fixed risk–return ratio for a portfolio as the horizon increases, an investor needs to increase the share of lower-risk financial assets during asset allocation process. This thesis becomes especially relevant in the context of retirement savings management.http://www.sciencedirect.com/science/article/pii/S2405473915000331retirement savingslong-term investmentsinvestment horizonstock and bond returnsstock and bond investment risksportfolio diversification |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Alexander Abramov Alexander Radygin Maria Chernova |
spellingShingle |
Alexander Abramov Alexander Radygin Maria Chernova Long-term portfolio investments: New insight into return and risk Russian Journal of Economics retirement savings long-term investments investment horizon stock and bond returns stock and bond investment risks portfolio diversification |
author_facet |
Alexander Abramov Alexander Radygin Maria Chernova |
author_sort |
Alexander Abramov |
title |
Long-term portfolio investments: New insight into return and risk |
title_short |
Long-term portfolio investments: New insight into return and risk |
title_full |
Long-term portfolio investments: New insight into return and risk |
title_fullStr |
Long-term portfolio investments: New insight into return and risk |
title_full_unstemmed |
Long-term portfolio investments: New insight into return and risk |
title_sort |
long-term portfolio investments: new insight into return and risk |
publisher |
Voprosy Ekonomiki |
series |
Russian Journal of Economics |
issn |
2405-4739 |
publishDate |
2015-09-01 |
description |
This article analyzes the impact of the increase of an investment horizon on the comparative advantages of the basic asset classes and on the principles of constructing the investment strategy. It demonstrates that the traditional approach of portfolio management theory, which states that investments in stocks are preferable over bonds in terms of their long-run risk–return trade-offs, is by no means always consistent with empirical evidence. This article proves the opposite, i.e., that for long-term investors, investments in corporate bonds are more profitable in terms of the risk–return ratio than investments in stocks, arguing in favor of strategies pursued by pension funds and other institutional investors focused primarily on investments in fixed-income instruments, including infrastructural bonds.
Emphasis is placed on the need for regular adjustments to long-term investors’ portfolios. As portfolios get older, those investors see a reduction in the returns’ dispersion, while differences in risk between various portfolios increase. This means that to maintain a fixed risk–return ratio for a portfolio as the horizon increases, an investor needs to increase the share of lower-risk financial assets during asset allocation process. This thesis becomes especially relevant in the context of retirement savings management. |
topic |
retirement savings long-term investments investment horizon stock and bond returns stock and bond investment risks portfolio diversification |
url |
http://www.sciencedirect.com/science/article/pii/S2405473915000331 |
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AT alexanderabramov longtermportfolioinvestmentsnewinsightintoreturnandrisk AT alexanderradygin longtermportfolioinvestmentsnewinsightintoreturnandrisk AT mariachernova longtermportfolioinvestmentsnewinsightintoreturnandrisk |
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