Efficiency of Dynamic Portfolio Choices : An Experiment

in Review of Financial Studies, 35 (3)

Magnani, Jacopo ; Rabanal, Jean Paul ; Rud, Olga A. ; Wang, Yabin

Voir la revue «Review of Financial Studies»

We study the efficiency of dynamic portfolio choices using the nonparametric methods of Dybvig (1988) Post (2003). We compare a dynamic portfolio task against an equivalent static Arrow-Debreu problem under two alternative environments: (1) nonpooled with 2 T terminal states and (2) pooled with T +1 unique 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.

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