Long-run savings and investment strategy optimization
We focus on automatic strategies to optimize life cycle savings and investment. Classical optimal savings theory establishes that, given the level of risk aversion, a saver would keep the same relative amount invested in risky assets at any given time. We show that, when optimizing lifecycle investm...
| Autores: | , , , |
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| Tipo de recurso: | artículo |
| Estado: | Versión publicada |
| Fecha de publicación: | 2014 |
| País: | España |
| Institución: | Universidad de Barcelona |
| Repositorio: | Dipòsit Digital de la UB |
| OAI Identifier: | oai:diposit.ub.edu:2445/69486 |
| Acceso en línea: | https://hdl.handle.net/2445/69486 |
| Access Level: | acceso abierto |
| Palabra clave: | Societats d'inversió Avaluació del risc Risc (Economia) Estalvi Mutual funds Risk assessment Risk Saving |
| Sumario: | We focus on automatic strategies to optimize life cycle savings and investment. Classical optimal savings theory establishes that, given the level of risk aversion, a saver would keep the same relative amount invested in risky assets at any given time. We show that, when optimizing lifecycle investment, performance and risk assessment have to take into account the investor's risk aversion and themaximum amount the investor could lose, simultaneously. When risk aversion andmaximumpossible loss are considered jointly, an optimal savings strategy is obtained, which follows fromconstant rather than relative absolute risk aversion. This result is fundamental to prove that if risk aversion and the maximumpossible loss are both high, then holding a constant amount invested in the risky asset is optimal for a standard lifetime saving/pension process and outperforms some other simple strategies. Performance comparisons are based on downside risk-adjusted equivalence that is used in our illustration. |
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