Bonds versus stocks: Investors’ age and risk taking |
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| Authors: | Turan G. Bali K. Ozgur Demirtas Haim Levy Avner Wolf |
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| Affiliation: | aDepartment of Economics and Finance, Zicklin School of Business, Baruch College, CUNY, One Bernard Baruch Way, Box 10-225, New York, NY 10010, USA;bDepartment of Finance, Jerusalem School of Business Administration, Hebrew University of Jerusalem, 91905, Israel |
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| Abstract: | It has become increasingly popular to advise investors to relocate their funds from a primarily stock portfolio to a primarily bond portfolio as they get older. However, the well-known decision rules such as mean–variance or stochastic dominance rules are unable to explain this common practice. Almost stochastic dominance (ASD) and almost mean–variance (AMV) approaches are used to examine the dominance of stock and bond portfolios. ASD and AMV rules unambiguously support the popular practice of advising higher stock to bond ratio for long investment horizons. Hence, we provide an explanation to the practitioners’ recommendation within the expected utility paradigm. |
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| Keywords: | Asset allocation Life-cycle funds Almost stochastic dominance Almost mean– variance |
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